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Did Hedge Funds Drop The Ball On InflaRx N.V. (IFRX) ?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like InflaRx N.V. (NASDAQ:IFRX).

Is InflaRx N.V. (NASDAQ:IFRX) a healthy stock for your portfolio? The smart money is getting more bullish. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that IFRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the latest hedge fund action surrounding InflaRx N.V. (NASDAQ:IFRX).

How have hedgies been trading InflaRx N.V. (NASDAQ:IFRX)?

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IFRX over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in InflaRx N.V. (NASDAQ:IFRX) was held by Baker Bros. Advisors, which reported holding $4.4 million worth of stock at the end of September. It was followed by Cormorant Asset Management with a $0.7 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Cormorant Asset Management allocated the biggest weight to InflaRx N.V. (NASDAQ:IFRX), around 0.05% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to IFRX.

As one would reasonably expect, some big names have been driving this bullishness. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, established the largest position in InflaRx N.V. (NASDAQ:IFRX). Baker Bros. Advisors had $4.4 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.3 million position during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as InflaRx N.V. (NASDAQ:IFRX) but similarly valued. These stocks are Pathfinder Bancorp, Inc. (NASDAQ:PBHC), Eyenovia, Inc. (NASDAQ:EYEN), Charah Solutions, Inc. (NYSE:CHRA), and Catabasis Pharmaceuticals Inc (NASDAQ:CATB). This group of stocks’ market valuations are similar to IFRX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBHC 1 3459 0
EYEN 2 795 0
CHRA 3 3137 0
CATB 3 2169 0
Average 2.25 2390 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $6 million in IFRX’s case. Charah Solutions, Inc. (NYSE:CHRA) is the most popular stock in this table. On the other hand Pathfinder Bancorp, Inc. (NASDAQ:PBHC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks InflaRx N.V. (NASDAQ:IFRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on IFRX as the stock returned 37.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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