Did Hedge Funds Drop The Ball On bluebird bio Inc (BLUE) ?

Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: bluebird bio Inc (NASDAQ:BLUE).

Is bluebird bio Inc (NASDAQ:BLUE) a cheap investment now? Prominent investors are becoming less confident. The number of bullish hedge fund bets were cut by 18 recently. Our calculations also showed that BLUE isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Samuel Isaly Orbimed Advisors

Let’s review the recent hedge fund action regarding bluebird bio Inc (NASDAQ:BLUE).

Hedge fund activity in bluebird bio Inc (NASDAQ:BLUE)

Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -53% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BLUE over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


When looking at the institutional investors followed by Insider Monkey, OrbiMed Advisors, managed by Samuel Isaly, holds the most valuable position in bluebird bio Inc (NASDAQ:BLUE). OrbiMed Advisors has a $38.4 million position in the stock, comprising 0.7% of its 13F portfolio. The second most bullish fund manager is Casdin Capital, led by Eli Casdin, holding a $32.7 million position; the fund has 5.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass D. E. Shaw’s D E Shaw, and Israel Englander’s Millennium Management.

Because bluebird bio Inc (NASDAQ:BLUE) has faced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their entire stakes heading into Q3. Interestingly, Jeremy Green’s Redmile Group said goodbye to the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $36.8 million in stock, and Mike Masters’s Masters Capital Management was right behind this move, as the fund dumped about $30.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 18 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as bluebird bio Inc (NASDAQ:BLUE) but similarly valued. These stocks are Fair Isaac Corporation (NYSE:FICO), Zayo Group Holdings Inc (NYSE:ZAYO), RenaissanceRe Holdings Ltd. (NYSE:RNR), and Fortune Brands Home & Security Inc (NYSE:FBHS). This group of stocks’ market valuations are closest to BLUE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FICO 24 313924 3
ZAYO 56 1247889 1
RNR 22 489483 2
FBHS 31 418666 -2
Average 33.25 617491 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $617 million. That figure was $116 million in BLUE’s case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks bluebird bio Inc (NASDAQ:BLUE) is even less popular than RNR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on BLUE as the stock returned 61.4% and outperformed the market as well.

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