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Hedge Funds Are Absolutely Crazy About Fate Therapeutics Inc (FATE)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Fate Therapeutics Inc (NASDAQ:FATE) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Fate Therapeutics Inc (NASDAQ:FATE) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FATE has experienced an increase in activity from the world’s largest hedge funds recently. There were 24 hedge funds in our database with FATE positions at the end of the first quarter. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Fate Therapeutics Inc (NASDAQ:FATE).

How are hedge funds trading Fate Therapeutics Inc (NASDAQ:FATE)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the first quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in FATE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FATE A Good Stock To Buy?

Among these funds, Redmile Group held the most valuable stake in Fate Therapeutics Inc (NASDAQ:FATE), which was worth $433.3 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $120.1 million worth of shares. Citadel Investment Group, Casdin Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 8% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, designating 6.19 percent of its 13F equity portfolio to FATE.

Consequently, specific money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the most valuable position in Fate Therapeutics Inc (NASDAQ:FATE). Point72 Asset Management had $11.2 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also initiated a $7.7 million position during the quarter. The following funds were also among the new FATE investors: Aaron Cowen’s Suvretta Capital Management, Matthew L Pinz’s Pinz Capital, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. We will take a look at Viavi Solutions Inc (NASDAQ:VIAV), American States Water Co (NYSE:AWR), Saia Inc (NASDAQ:SAIA), Altair Engineering Inc. (NASDAQ:ALTR), LCI Industries (NYSE:LCII), Louisiana-Pacific Corporation (NYSE:LPX), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks’ market values resemble FATE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIAV 31 340923 0
AWR 20 63884 1
SAIA 17 69816 4
ALTR 14 298466 5
LCII 18 126076 3
LPX 38 417616 12
HMSY 16 110794 -4
Average 22 203939 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $986 million in FATE’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 14 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FATE is 85.8. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately FATE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FATE were disappointed as the stock returned 6.1% 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.