Did Hedge Funds Make The Right Call On SAGE Therapeutics Inc (SAGE) ?

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 SAGE Therapeutics Inc (NASDAQ:SAGE) at the end of the first quarter and determine whether the smart money was really smart about this stock.

SAGE Therapeutics Inc (NASDAQ:SAGE) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that SAGE 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 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. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing SAGE Therapeutics Inc (NASDAQ:SAGE).

What does smart money think about SAGE Therapeutics Inc (NASDAQ:SAGE)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SAGE over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is SAGE A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Jeffrey Jay and David Kroin’s Great Point Partners has the biggest position in SAGE Therapeutics Inc (NASDAQ:SAGE), worth close to $52.4 million, accounting for 5.5% of its total 13F portfolio. On Great Point Partners’s heels is Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, which holds a $28.7 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions include  Renaissance Technologies, Farallon Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to SAGE Therapeutics Inc (NASDAQ:SAGE), around 5.47% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, dishing out 2.15 percent of its 13F equity portfolio to SAGE.

Seeing as SAGE Therapeutics Inc (NASDAQ:SAGE) has faced falling interest from hedge fund managers, it’s easy to see that there were a few hedge funds that slashed their entire stakes in the first quarter. Interestingly, Brandon Haley’s Holocene Advisors dropped the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $24.1 million in stock, and Nancy Zevenbergen’s Zevenbergen Capital Investments was right behind this move, as the fund cut about $17.1 million worth. These moves are interesting, as total hedge fund interest fell by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to SAGE Therapeutics Inc (NASDAQ:SAGE). These stocks are PQ Group Holdings Inc. (NYSE:PQG), Trustmark Corp (NASDAQ:TRMK), Onto Innovation Inc. (NYSE:ONTO), and Moelis & Company (NYSE:MC). All of these stocks’ market caps resemble SAGE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PQG 7 36427 3
TRMK 13 11558 -3
ONTO 11 123006 -3
MC 10 37457 -3
Average 10.25 52112 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $258 million in SAGE’s case. Trustmark Corp (NASDAQ:TRMK) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks SAGE Therapeutics Inc (NASDAQ:SAGE) 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 SAGE as the stock returned 44.8% 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.