Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
ProQR Therapeutics NV (NASDAQ:PRQR) was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. PRQR investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 9 hedge funds in our database with PRQR positions at the end of the previous quarter. Our calculations also showed that PRQR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Sahm Adrangi of Kerrisdale Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action regarding ProQR Therapeutics NV (NASDAQ:PRQR).
What have hedge funds been doing with ProQR Therapeutics NV (NASDAQ:PRQR)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRQR over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ProQR Therapeutics NV (NASDAQ:PRQR) was held by Adage Capital Management, which reported holding $21.5 million worth of stock at the end of September. It was followed by Aquilo Capital Management with a $4.8 million position. Other investors bullish on the company included Kerrisdale Capital, DAFNA Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to ProQR Therapeutics NV (NASDAQ:PRQR), around 3.37% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, setting aside 1.68 percent of its 13F equity portfolio to PRQR.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: OrbiMed Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified PRQR as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks similar to ProQR Therapeutics NV (NASDAQ:PRQR). These stocks are Natural Grocers by Vitamin Cottage Inc (NYSE:NGVC), CBL & Associates Properties, Inc. (NYSE:CBL), Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH), and Select Bancorp, Inc. (NASDAQ:SLCT). This group of stocks’ market valuations match PRQR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGVC | 9 | 13308 | -3 |
| CBL | 15 | 23460 | 6 |
| SPWH | 21 | 42790 | 5 |
| SLCT | 5 | 10328 | 1 |
| Average | 12.5 | 22472 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $34 million in PRQR’s case. Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) is the most popular stock in this table. On the other hand Select Bancorp, Inc. (NASDAQ:SLCT) is the least popular one with only 5 bullish hedge fund positions. ProQR Therapeutics NV (NASDAQ:PRQR) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on PRQR as the stock returned 48.3% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
