Do Hedge Funds Love Frequency Therapeutics, Inc. (FREQ)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Frequency Therapeutics, Inc. (NASDAQ:FREQ).

Is Frequency Therapeutics, Inc. (NASDAQ:FREQ) a buy, sell, or hold? Hedge funds are taking a bearish view. The number of long hedge fund positions decreased by 1 recently. Our calculations also showed that FREQ 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). FREQ was in 8 hedge funds’ portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with FREQ 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.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now we’re going to take a look at the new hedge fund action regarding Frequency Therapeutics, Inc. (NASDAQ:FREQ).

What does smart money think about Frequency Therapeutics, Inc. (NASDAQ:FREQ)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in FREQ a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is FREQ A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Perceptive Advisors, managed by Joseph Edelman, holds the largest position in Frequency Therapeutics, Inc. (NASDAQ:FREQ). Perceptive Advisors has a $54 million position in the stock, comprising 1.4% of its 13F portfolio. On Perceptive Advisors’s heels is Julian Baker and Felix Baker of Baker Bros. Advisors, with a $21 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass James E. Flynn’s Deerfield Management, Christiana Goh Bardon’s Burrage Capital Management and Benjamin A. Smith’s Laurion Capital Management. In terms of the portfolio weights assigned to each position Burrage Capital Management allocated the biggest weight to Frequency Therapeutics, Inc. (NASDAQ:FREQ), around 2.96% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, earmarking 1.41 percent of its 13F equity portfolio to FREQ.

Seeing as Frequency Therapeutics, Inc. (NASDAQ:FREQ) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that decided to sell off their positions entirely last quarter. Intriguingly, D. E. Shaw’s D E Shaw said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $0.3 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $0.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Frequency Therapeutics, Inc. (NASDAQ:FREQ) but similarly valued. We will take a look at eXp World Holdings, Inc. (NASDAQ:EXPI), 111, Inc. (NASDAQ:YI), Northfield Bancorp Inc (NASDAQ:NFBK), and Harsco Corporation (NYSE:HSC). This group of stocks’ market valuations are closest to FREQ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXPI 6 14324 -1
YI 3 7044 1
NFBK 6 28889 1
HSC 16 64647 -5
Average 7.75 28726 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $98 million in FREQ’s case. Harsco Corporation (NYSE:HSC) is the most popular stock in this table. On the other hand 111, Inc. (NASDAQ:YI) is the least popular one with only 3 bullish hedge fund positions. Frequency Therapeutics, Inc. (NASDAQ:FREQ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately FREQ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FREQ were disappointed as the stock returned 16.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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