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Did Hedge Funds Make The Right Call On CytomX Therapeutics, Inc. (CTMX) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCytomX Therapeutics, Inc. (NASDAQ:CTMX) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in CytomX Therapeutics, Inc. (NASDAQ:CTMX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CTMX to other stocks including Rosetta Stone Inc (NYSE:RST), Utah Medical Products, Inc. (NASDAQ:UTMD), and Tekla Life Sciences Investors (NYSE:HQL) to get a better sense of its popularity.

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

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Joseph Edelman of Perceptive Advisors

Joseph Edelman of Perceptive Advisors

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 let’s take a glance at the recent hedge fund action surrounding CytomX Therapeutics, Inc. (NASDAQ:CTMX).

How have hedgies been trading CytomX Therapeutics, Inc. (NASDAQ:CTMX)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CTMX over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of CytomX Therapeutics, Inc. (NASDAQ:CTMX), with a stake worth $30.1 million reported as of the end of September. Trailing Biotechnology Value Fund / BVF Inc was Perceptive Advisors, which amassed a stake valued at $25 million. Renaissance Technologies, D E Shaw, and Two Sigma Advisors 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 Burrage Capital Management allocated the biggest weight to CytomX Therapeutics, Inc. (NASDAQ:CTMX), around 3.41% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, setting aside 2.8 percent of its 13F equity portfolio to CTMX.

Seeing as CytomX Therapeutics, Inc. (NASDAQ:CTMX) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that slashed their positions entirely by the end of the first quarter. At the top of the heap, Minhua Zhang’s Weld Capital Management sold off the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $0.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CytomX Therapeutics, Inc. (NASDAQ:CTMX) but similarly valued. We will take a look at Rosetta Stone Inc (NYSE:RST), Utah Medical Products, Inc. (NASDAQ:UTMD), Tekla Life Sciences Investors (NYSE:HQL), and Realogy Holdings Corp (NYSE:RLGY). This group of stocks’ market valuations are closest to CTMX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RST 22 96350 4
UTMD 6 32769 0
HQL 1 277 -2
RLGY 25 104699 -5
Average 13.5 58524 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $99 million in CTMX’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 1 bullish hedge fund positions. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 15.5 percentage points. Unfortunately CTMX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CTMX were disappointed as the stock returned 8.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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