Do Hedge Funds Love Proteostasis Therapeutics, Inc. (PTI)?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Proteostasis Therapeutics, Inc. (NASDAQ:PTI).

Proteostasis Therapeutics, Inc. (NASDAQ:PTI) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 14. PTI has seen a decrease in support from the world’s most elite money managers recently. There were 6 hedge funds in our database with PTI holdings at the end of June. Our calculations also showed that PTI 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.

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 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. 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 15 best blue chip stocks 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. Keeping this in mind we’re going to view the latest hedge fund action regarding Proteostasis Therapeutics, Inc. (NASDAQ:PTI).

How have hedgies been trading Proteostasis Therapeutics, Inc. (NASDAQ:PTI)?

Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PTI over the last 21 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Proteostasis Therapeutics, Inc. (NASDAQ:PTI) was held by Ikarian Capital, which reported holding $2.6 million worth of stock at the end of September. It was followed by Millennium Management with a $0.4 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ikarian Capital allocated the biggest weight to Proteostasis Therapeutics, Inc. (NASDAQ:PTI), around 0.19% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0005 percent of its 13F equity portfolio to PTI.

Because Proteostasis Therapeutics, Inc. (NASDAQ:PTI) has witnessed falling interest from the smart money, it’s easy to see that there were a few hedge funds that decided to sell off their entire stakes in the third quarter. Intriguingly, David Harding’s Winton Capital Management dropped the biggest stake of all the hedgies followed by Insider Monkey, valued at an estimated $1.1 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Proteostasis Therapeutics, Inc. (NASDAQ:PTI). These stocks are Fauquier Bankshares, Inc. (NASDAQ:FBSS), Smart Sand, Inc. (NASDAQ:SND), Digital Ally, Inc. (NASDAQ:DGLY), Canterbury Park Holding Corporation (NASDAQ:CPHC), Jupai Holdings Limited (NYSE:JP), Nicholas Financial, Inc. (NASDAQ:NICK), and Exela Technologies, Inc. (NASDAQ:XELA). All of these stocks’ market caps match PTI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBSS 2 5457 0
SND 5 2192 -3
DGLY 1 411 -2
CPHC 1 5301 0
JP 1 261 -1
NICK 3 19199 0
XELA 5 6710 -4
Average 2.6 5647 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.6 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $4 million in PTI’s case. Smart Sand, Inc. (NASDAQ:SND) is the most popular stock in this table. On the other hand Digital Ally, Inc. (NASDAQ:DGLY) is the least popular one with only 1 bullish hedge fund positions. Proteostasis Therapeutics, Inc. (NASDAQ:PTI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTI is 64.7. 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 positive signal but 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 beat the market again by 16.1 percentage points. Unfortunately PTI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PTI were disappointed as the stock returned -0.9% 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 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.