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Did Hedge Funds Drop The Ball On WAVE Life Sciences Ltd. (WVE) ?

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 WAVE Life Sciences Ltd. (NASDAQ:WVE).

WAVE Life Sciences Ltd. (NASDAQ:WVE) investors should be aware of a decrease in support from the world’s most elite money managers lately. Our calculations also showed that WVE 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.

According to most stock holders, hedge funds are seen as unimportant, old financial tools of yesteryear. While there are over 8000 funds with their doors open at present, Our experts look at the bigwigs of this group, approximately 750 funds. It is estimated that this group of investors administer most of the hedge fund industry’s total capital, and by monitoring their inimitable picks, Insider Monkey has revealed a few investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Peter Kolchinsky of RA Capital Management

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. We’re going to view the fresh hedge fund action encompassing WAVE Life Sciences Ltd. (NASDAQ:WVE).

What does smart money think about WAVE Life Sciences Ltd. (NASDAQ:WVE)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WVE over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is WVE A Good Stock To Buy?

More specifically, RA Capital Management was the largest shareholder of WAVE Life Sciences Ltd. (NASDAQ:WVE), with a stake worth $159.6 million reported as of the end of September. Trailing RA Capital Management was Redmile Group, which amassed a stake valued at $65.2 million. Deerfield Management, DAFNA Capital Management, and Berylson Capital Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to WAVE Life Sciences Ltd. (NASDAQ:WVE), around 9.51% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, setting aside 7.86 percent of its 13F equity portfolio to WVE.

Seeing as WAVE Life Sciences Ltd. (NASDAQ:WVE) has witnessed a decline in interest from the smart money, we can see that there lies a certain “tier” of hedge funds who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Roberto Mignone’s Bridger Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $17 million in stock, and Jim Tananbaum’s Foresite Capital was right behind this move, as the fund said goodbye to about $3.7 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to WAVE Life Sciences Ltd. (NASDAQ:WVE). We will take a look at Stoke Therapeutics, Inc. (NASDAQ:STOK), U.S. Silica Holdings Inc (NYSE:SLCA), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and NextCure, Inc. (NASDAQ:NXTC). This group of stocks’ market values match WVE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STOK 10 117509 -8
SLCA 16 198147 -1
JKS 6 14103 -2
NXTC 8 189131 0
Average 10 129723 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $261 million in WVE’s case. U.S. Silica Holdings Inc (NYSE:SLCA) is the most popular stock in this table. On the other hand JinkoSolar Holding Co., Ltd. (NYSE:JKS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks WAVE Life Sciences Ltd. (NASDAQ:WVE) 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 WVE as the stock returned 61.5% 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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