Did Hedge Funds Make The Right Call On Cytokinetics, Inc. (CYTK) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cytokinetics, Inc. (NASDAQ:CYTK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Cytokinetics, Inc. (NASDAQ:CYTK) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that CYTK 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.

Richard Driehaus of Driehaus Capital

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. With all of this in mind we’re going to review the latest hedge fund action regarding Cytokinetics, Inc. (NASDAQ:CYTK).

What have hedge funds been doing with Cytokinetics, Inc. (NASDAQ:CYTK)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CYTK over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of Cytokinetics, Inc. (NASDAQ:CYTK), with a stake worth $46.4 million reported as of the end of September. Trailing Biotechnology Value Fund / BVF Inc was Consonance Capital Management, which amassed a stake valued at $40.5 million. Driehaus Capital, Millennium Management, and Citadel Investment Group 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 Biotechnology Value Fund / BVF Inc allocated the biggest weight to Cytokinetics, Inc. (NASDAQ:CYTK), around 4.33% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, dishing out 3.56 percent of its 13F equity portfolio to CYTK.

Now, some big names were leading the bulls’ herd. Consonance Capital Management, managed by Mitchell Blutt, created the biggest position in Cytokinetics, Inc. (NASDAQ:CYTK). Consonance Capital Management had $40.5 million invested in the company at the end of the quarter. Farallon Capital also made a $7.4 million investment in the stock during the quarter. The other funds with brand new CYTK positions are Bhagwan Jay Rao’s Integral Health Asset Management, Christiana Goh Bardon’s Burrage Capital Management, and Panayotis Takis Sparaggis’s Alkeon Capital Management.

Let’s now review hedge fund activity in other stocks similar to Cytokinetics, Inc. (NASDAQ:CYTK). These stocks are International Seaways, Inc. (NYSE:INSW), Talend S.A. (NASDAQ:TLND), Third Point Reinsurance Ltd (NYSE:TPRE), and Novavax, Inc. (NASDAQ:NVAX). All of these stocks’ market caps resemble CYTK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INSW 27 169817 5
TLND 29 332515 5
TPRE 17 40013 -3
NVAX 4 11335 1
Average 19.25 138420 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $206 million in CYTK’s case. Talend S.A. (NASDAQ:TLND) is the most popular stock in this table. On the other hand Novavax, Inc. (NASDAQ:NVAX) is the least popular one with only 4 bullish hedge fund positions. Cytokinetics, Inc. (NASDAQ:CYTK) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CYTK as the stock returned 99.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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