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Did Hedge Funds Make The Right Call On Orchard Therapeutics plc (ORTX) ?

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 Orchard Therapeutics plc (NASDAQ:ORTX) and determine whether hedge funds had an edge regarding this stock.

Orchard Therapeutics plc (NASDAQ:ORTX) has seen a decrease in support from the world’s most elite money managers recently. Our calculations also showed that ORTX 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a peek at the new hedge fund action regarding Orchard Therapeutics plc (NASDAQ:ORTX).

How are hedge funds trading Orchard Therapeutics plc (NASDAQ:ORTX)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in ORTX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ORTX A Good Stock To Buy?

The largest stake in Orchard Therapeutics plc (NASDAQ:ORTX) was held by Deerfield Management, which reported holding $66.7 million worth of stock at the end of September. It was followed by RA Capital Management with a $57 million position. Other investors bullish on the company included Adage Capital Management, Vivo Capital, and Driehaus Capital. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Orchard Therapeutics plc (NASDAQ:ORTX), around 2.12% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to ORTX.

Seeing as Orchard Therapeutics plc (NASDAQ:ORTX) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their positions entirely in the first quarter. At the top of the heap, Jeffrey Talpins’s Element Capital Management dumped the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $13.4 million in stock. James Thomas Berylson’s fund, Berylson Capital Partners, also sold off its stock, about $2.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Orchard Therapeutics plc (NASDAQ:ORTX). We will take a look at Ingles Markets, Incorporated (NASDAQ:IMKTA), OneSpan Inc. (NASDAQ:OSPN), Bitauto Hldg Ltd (NYSE:BITA), and Azure Power Global Limited (NYSE:AZRE). This group of stocks’ market values are closest to ORTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IMKTA 11 53738 -2
OSPN 13 63457 0
BITA 18 99076 3
AZRE 4 10039 0
Average 11.5 56578 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $201 million in ORTX’s case. Bitauto Hldg Ltd (NYSE:BITA) is the most popular stock in this table. On the other hand Azure Power Global Limited (NYSE:AZRE) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Orchard Therapeutics plc (NASDAQ:ORTX) 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately ORTX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ORTX were disappointed as the stock returned -30.5% since the end of the first quarter 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 most of these stocks already outperformed the market in 2020.

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