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 BeyondSpring, Inc. (NASDAQ:BYSI).
BeyondSpring, Inc. (NASDAQ:BYSI) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. BeyondSpring, Inc. (NASDAQ:BYSI) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 5. Our calculations also showed that BYSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s go over the latest hedge fund action regarding BeyondSpring, Inc. (NASDAQ:BYSI).
Hedge fund activity in BeyondSpring, Inc. (NASDAQ:BYSI)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BYSI over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Marshall and Ian Wace’s Marshall Wace LLP has the largest position in BeyondSpring, Inc. (NASDAQ:BYSI), worth close to $0.9 million, accounting for less than 0.1%% of its total 13F portfolio. On Marshall Wace LLP’s heels is Renaissance Technologies, holding a $0.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Louis Bacon’s Moore Global Investments, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Moore Global Investments allocated the biggest weight to BeyondSpring, Inc. (NASDAQ:BYSI), around 0.01% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to BYSI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified BYSI as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as BeyondSpring, Inc. (NASDAQ:BYSI) but similarly valued. We will take a look at Sierra Wireless, Inc. (NASDAQ:SWIR), Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Organogenesis Holdings Inc. (NASDAQ:ORGO), Rubius Therapeutics, Inc. (NASDAQ:RUBY), Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), Brightcove Inc (NASDAQ:BCOV), and The Lovesac Company (NASDAQ:LOVE). All of these stocks’ market caps match BYSI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $2 million in BYSI’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Organogenesis Holdings Inc. (NASDAQ:ORGO) is the least popular one with only 2 bullish hedge fund positions. BeyondSpring, Inc. (NASDAQ:BYSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BYSI is 33.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately BYSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BYSI investors were disappointed as the stock returned -15.9% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.