Did Hedge Funds Make The Right Call On Adverum Biotechnologies, Inc. (ADVM) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Adverum Biotechnologies, Inc. (NASDAQ:ADVM) and determine whether hedge funds skillfully traded this stock.

Adverum Biotechnologies, Inc. (NASDAQ:ADVM) shareholders have witnessed an increase in hedge fund sentiment of late. ADVM was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with ADVM holdings at the end of the previous quarter. Our calculations also showed that ADVM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a lot of gauges market participants can use to grade their holdings. Some of the less known gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outpace the broader indices by a solid amount (see the details here).

Peter Kolchinsky of RA Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to review the new hedge fund action regarding Adverum Biotechnologies, Inc. (NASDAQ:ADVM).

Hedge fund activity in Adverum Biotechnologies, Inc. (NASDAQ:ADVM)

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADVM over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Adverum Biotechnologies, Inc. (NASDAQ:ADVM) was held by RA Capital Management, which reported holding $71.1 million worth of stock at the end of September. It was followed by Avoro Capital Advisors (venBio Select Advisor) with a $69.9 million position. Other investors bullish on the company included Sonic Capital, OrbiMed Advisors, and Deerfield Management. In terms of the portfolio weights assigned to each position Sonic Capital allocated the biggest weight to Adverum Biotechnologies, Inc. (NASDAQ:ADVM), around 34.81% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, earmarking 8.07 percent of its 13F equity portfolio to ADVM.

As one would reasonably expect, specific money managers were breaking ground themselves. RA Capital Management, managed by Peter Kolchinsky, created the most valuable position in Adverum Biotechnologies, Inc. (NASDAQ:ADVM). RA Capital Management had $71.1 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also initiated a $16.7 million position during the quarter. The following funds were also among the new ADVM investors: Eli Casdin’s Casdin Capital, Henrik Rhenman’s Rhenman & Partners Asset Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s go over hedge fund activity in other stocks similar to Adverum Biotechnologies, Inc. (NASDAQ:ADVM). These stocks are American Woodmark Corporation (NASDAQ:AMWD), Chase Corporation (NYSE:CCF), HealthStream, Inc. (NASDAQ:HSTM), and K12 Inc. (NYSE:LRN). This group of stocks’ market values resemble ADVM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMWD 11 14493 -6
CCF 10 67591 1
HSTM 17 46967 4
LRN 20 107274 5
Average 14.5 59081 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $353 million in ADVM’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Chase Corporation (NYSE:CCF) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ADVM as the stock returned 113.7% in Q2 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.

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