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Did Hedge Funds Drop The Ball On Atara Biotherapeutics Inc (ATRA)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Atara Biotherapeutics Inc (NASDAQ:ATRA).

Is Atara Biotherapeutics Inc (NASDAQ:ATRA) the right pick for your portfolio? The best stock pickers are turning less bullish. The number of long hedge fund bets fell by 3 recently. Our calculations also showed that ATRA isn’t among the 30 most popular stocks among hedge funds (see the video below). ATRA was in 12 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with ATRA positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Roberto-Mignone1

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action regarding Atara Biotherapeutics Inc (NASDAQ:ATRA).

Hedge fund activity in Atara Biotherapeutics Inc (NASDAQ:ATRA)

At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the first quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in ATRA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ATRA Positions

Among these funds, Baupost Group held the most valuable stake in Atara Biotherapeutics Inc (NASDAQ:ATRA), which was worth $140.8 million at the end of the second quarter. On the second spot was Redmile Group which amassed $92.5 million worth of shares. Moreover, Maverick Capital, Camber Capital Management, and Bridger Management were also bullish on Atara Biotherapeutics Inc (NASDAQ:ATRA), allocating a large percentage of their portfolios to this stock.

Seeing as Atara Biotherapeutics Inc (NASDAQ:ATRA) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies who were dropping their entire stakes in the second quarter. Interestingly, Jacob Doft’s Highline Capital Management cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $11 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund sold off about $7.7 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds in the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Atara Biotherapeutics Inc (NASDAQ:ATRA) but similarly valued. We will take a look at Pacific Drilling SA (NYSE:PACD), TCG BDC, Inc. (NASDAQ:CGBD), Zymeworks Inc. (NYSE:ZYME), and Interface, Inc. (NASDAQ:TILE). All of these stocks’ market caps match ATRA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PACD 9 669854 3
CGBD 8 30678 -4
ZYME 14 297349 0
TILE 12 36187 -2
Average 10.75 258517 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $378 million in ATRA’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand TCG BDC, Inc. (NASDAQ:CGBD) is the least popular one with only 8 bullish hedge fund positions. Atara Biotherapeutics Inc (NASDAQ:ATRA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ATRA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ATRA were disappointed as the stock returned -29.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

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