Did Hedge Funds Make The Right Call On Pacific Biosciences of California, Inc. (PACB) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Pacific Biosciences of California, Inc. (NASDAQ:PACB) based on that data and determine whether they were really smart about the stock.

Is Pacific Biosciences of California, Inc. (NASDAQ:PACB) ready to rally soon? The best stock pickers were becoming less confident. The number of long hedge fund bets shrunk by 5 lately. Our calculations also showed that PACB 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). PACB was in 18 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with PACB positions at the end of the previous quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.


Larry Robbins of Glenview Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. With all of this in mind we’re going to take a gander at the new hedge fund action regarding Pacific Biosciences of California, Inc. (NASDAQ:PACB).

How have hedgies been trading Pacific Biosciences of California, Inc. (NASDAQ:PACB)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PACB over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, John Orrico’s Water Island Capital has the number one position in Pacific Biosciences of California, Inc. (NASDAQ:PACB), worth close to $16.7 million, comprising 1.2% of its total 13F portfolio. Coming in second is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $10.9 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism encompass Larry Robbins’s Glenview Capital, Farallon Capital and Stephen DuBois’s Camber Capital Management. In terms of the portfolio weights assigned to each position Water Island Capital allocated the biggest weight to Pacific Biosciences of California, Inc. (NASDAQ:PACB), around 1.2% of its 13F portfolio. Havens Advisors is also relatively very bullish on the stock, setting aside 0.92 percent of its 13F equity portfolio to PACB.

Due to the fact that Pacific Biosciences of California, Inc. (NASDAQ:PACB) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers that slashed their entire stakes in the first quarter. Intriguingly, Noam Gottesman’s GLG Partners said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, totaling about $4 million in stock, and Andre F. Perold’s HighVista Strategies was right behind this move, as the fund said goodbye to about $1.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Pacific Biosciences of California, Inc. (NASDAQ:PACB). These stocks are Mesoblast Limited (NASDAQ:MESO), Boingo Wireless Inc (NASDAQ:WIFI), Dorian LPG Ltd (NYSE:LPG), and Winmark Corporation (NASDAQ:WINA). This group of stocks’ market values are similar to PACB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MESO 4 1302 3
WIFI 16 149530 4
LPG 17 107158 -5
WINA 11 76758 -1
Average 12 83687 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $75 million in PACB’s case. Dorian LPG Ltd (NYSE:LPG) is the most popular stock in this table. On the other hand Mesoblast Limited (NASDAQ:MESO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Pacific Biosciences of California, Inc. (NASDAQ:PACB) 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 PACB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PACB were disappointed as the stock returned 23.5% 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.