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 Seattle Genetics, Inc. (NASDAQ:SGEN) and determine whether hedge funds had an edge regarding this stock.
Seattle Genetics, Inc. (NASDAQ:SGEN) was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. SGEN has seen a decrease in hedge fund interest recently. There were 36 hedge funds in our database with SGEN holdings at the end of the previous quarter. Our calculations also showed that SGEN 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.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the new hedge fund action regarding Seattle Genetics, Inc. (NASDAQ:SGEN).
How have hedgies been trading Seattle Genetics, Inc. (NASDAQ:SGEN)?
At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SGEN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Julian Baker and Felix Baker’s Baker Bros. Advisors has the number one position in Seattle Genetics, Inc. (NASDAQ:SGEN), worth close to $5.776 billion, comprising 35.6% of its total 13F portfolio. On Baker Bros. Advisors’s heels is Jeremy Green of Redmile Group, with a $75.7 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions consist of Robert Pohly’s Samlyn Capital, Michael Rockefeller and KarláKroeker’s Woodline Partners and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Baker Bros. Advisors allocated the biggest weight to Seattle Genetics, Inc. (NASDAQ:SGEN), around 35.57% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, designating 3 percent of its 13F equity portfolio to SGEN.
Seeing as Seattle Genetics, Inc. (NASDAQ:SGEN) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds that decided to sell off their positions entirely by the end of the first quarter. Interestingly, David Goel and Paul Ferri’s Matrix Capital Management cut the largest investment of the 750 funds watched by Insider Monkey, worth an estimated $182.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $4.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds by the end of the first quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Seattle Genetics, Inc. (NASDAQ:SGEN) but similarly valued. We will take a look at AutoZone, Inc. (NYSE:AZO), PPG Industries, Inc. (NYSE:PPG), Credit Suisse Group AG (NYSE:CS), and Fresenius Medical Care AG & Co. (NYSE:FMS). This group of stocks’ market caps are closest to SGEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZO | 45 | 1355325 | 5 |
| PPG | 35 | 393229 | 0 |
| CS | 11 | 134498 | 1 |
| FMS | 10 | 16944 | -1 |
| Average | 25.25 | 474999 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $6154 million in SGEN’s case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 10 bullish hedge fund positions. Seattle Genetics, Inc. (NASDAQ:SGEN) 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 SGEN as the stock returned 47.3% 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.
