Do Hedge Funds Love Forty Seven, Inc. (FTSV)?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Forty Seven, Inc. (NASDAQ:FTSV) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that FTSV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action encompassing Forty Seven, Inc. (NASDAQ:FTSV).

How have hedgies been trading Forty Seven, Inc. (NASDAQ:FTSV)?

At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the second quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in FTSV a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Redmile Group, managed by Jeremy Green, holds the most valuable position in Forty Seven, Inc. (NASDAQ:FTSV). Redmile Group has a $10.4 million position in the stock, comprising 0.3% of its 13F portfolio. On Redmile Group’s heels is Ken Griffin of Citadel Investment Group, with a $5.6 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish consist of Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, James E. Flynn’s Deerfield Management and James A. Silverman’s Opaleye Management. In terms of the portfolio weights assigned to each position Bourgeon Capital allocated the biggest weight to Forty Seven, Inc. (NASDAQ:FTSV), around 1.12% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, earmarking 0.99 percent of its 13F equity portfolio to FTSV.

As industrywide interest jumped, key hedge funds have jumped into Forty Seven, Inc. (NASDAQ:FTSV) headfirst. Deerfield Management, managed by James E. Flynn, assembled the biggest position in Forty Seven, Inc. (NASDAQ:FTSV). Deerfield Management had $4.8 million invested in the company at the end of the quarter. James A. Silverman’s Opaleye Management also initiated a $2.7 million position during the quarter. The other funds with brand new FTSV positions are Benjamin A. Smith’s Laurion Capital Management and Paul Marshall and Ian Wace’s Marshall Wace.

Let’s check out hedge fund activity in other stocks similar to Forty Seven, Inc. (NASDAQ:FTSV). These stocks are The Lovesac Company (NASDAQ:LOVE), Enlivex Therapeutics Ltd. (NASDAQ:ENLV), General Finance Corporation (NASDAQ:GFN), and Entravision Communications Corporation (NYSE:EVC). This group of stocks’ market values are closest to FTSV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOVE 12 35995 2
ENLV 1 635 0
GFN 5 9584 0
EVC 11 30046 -4
Average 7.25 19065 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $34 million in FTSV’s case. The Lovesac Company (NASDAQ:LOVE) is the most popular stock in this table. On the other hand Enlivex Therapeutics Ltd. (NASDAQ:ENLV) is the least popular one with only 1 bullish hedge fund positions. Forty Seven, Inc. (NASDAQ:FTSV) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on FTSV as the stock returned 96.9% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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