Did Hedge Funds Make The Right Call On CRISPR Therapeutics AG (CRSP) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CRISPR Therapeutics AG (NASDAQ:CRSP) and determine whether hedge funds had an edge regarding this stock.

CRISPR Therapeutics AG (NASDAQ:CRSP) has seen an increase in hedge fund interest in recent months. Our calculations also showed that CRSP 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chris Hansen - Valiant Capital

Christopher R. Hansen of Valiant Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind we’re going to take a glance at the new hedge fund action encompassing CRISPR Therapeutics AG (NASDAQ:CRSP).

What does smart money think about CRISPR Therapeutics AG (NASDAQ:CRSP)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CRSP over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bihua Chen’s Cormorant Asset Management has the number one position in CRISPR Therapeutics AG (NASDAQ:CRSP), worth close to $26.7 million, comprising 1.2% of its total 13F portfolio. The second most bullish fund manager is OrbiMed Advisors, led by Samuel Isaly, holding a $23.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Renaissance Technologies, Christopher R. Hansen’s Valiant Capital and Farallon Capital. In terms of the portfolio weights assigned to each position Valiant Capital allocated the biggest weight to CRISPR Therapeutics AG (NASDAQ:CRSP), around 2.06% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, designating 1.7 percent of its 13F equity portfolio to CRSP.

As industrywide interest jumped, specific money managers have been driving this bullishness. Casdin Capital, managed by Eli Casdin, created the largest position in CRISPR Therapeutics AG (NASDAQ:CRSP). Casdin Capital had $11.3 million invested in the company at the end of the quarter. Arsani William’s Logos Capital also made a $4.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Thomas Bailard’s Bailard Inc, Oleg Nodelman’s EcoR1 Capital, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks similar to CRISPR Therapeutics AG (NASDAQ:CRSP). These stocks are Inovalon Holdings Inc (NASDAQ:INOV), Radian Group Inc (NYSE:RDN), bluebird bio Inc (NASDAQ:BLUE), and Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). This group of stocks’ market valuations are similar to CRSP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INOV 15 71699 -1
RDN 28 121169 -1
BLUE 27 286752 -6
RARE 18 236444 0
Average 22 179016 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $198 million in CRSP’s case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks CRISPR Therapeutics AG (NASDAQ:CRSP) 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 CRSP as the stock returned 73.3% 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.