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 CytomX Therapeutics, Inc. (NASDAQ:CTMX) and determine whether hedge funds had an edge regarding this stock.
CytomX Therapeutics, Inc. (NASDAQ:CTMX) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of June. Our calculations also showed that CTMX 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). At the end of this article we will also compare CTMX to other stocks including The Lovesac Company (NASDAQ:LOVE), Newtek Business Services Corp (NASDAQ:NEWT), and Barings BDC, Inc. (NYSE:BBDC) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the key hedge fund action encompassing CytomX Therapeutics, Inc. (NASDAQ:CTMX).
What have hedge funds been doing with CytomX Therapeutics, Inc. (NASDAQ:CTMX)?
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in CTMX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of CytomX Therapeutics, Inc. (NASDAQ:CTMX), with a stake worth $26 million reported as of the end of September. Trailing Biotechnology Value Fund / BVF Inc was Perceptive Advisors, which amassed a stake valued at $21.5 million. Renaissance Technologies, Great Point Partners, and Point72 Asset 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 Biotechnology Value Fund / BVF Inc allocated the biggest weight to CytomX Therapeutics, Inc. (NASDAQ:CTMX), around 1.6% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, designating 0.96 percent of its 13F equity portfolio to CTMX.
Judging by the fact that CytomX Therapeutics, Inc. (NASDAQ:CTMX) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies that slashed their entire stakes in the second quarter. Interestingly, Christiana Goh Bardon’s Burrage Capital Management dumped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $3.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $0.9 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to CytomX Therapeutics, Inc. (NASDAQ:CTMX). We will take a look at The Lovesac Company (NASDAQ:LOVE), Newtek Business Services Corp (NASDAQ:NEWT), Barings BDC, Inc. (NYSE:BBDC), Customers Bancorp Inc (NASDAQ:CUBI), Tejon Ranch Company (NYSE:TRC), Global Cord Blood Corp (NYSE:CO), and Ituran Location and Control Ltd. (NASDAQ:ITRN). This group of stocks’ market values are closest to CTMX’s market value.
|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 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $107 million in CTMX’s case. Customers Bancorp Inc (NASDAQ:CUBI) is the most popular stock in this table. On the other hand Newtek Business Services Corp (NASDAQ:NEWT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks CytomX Therapeutics, Inc. (NASDAQ:CTMX) is more popular among hedge funds. Our overall hedge fund sentiment score for CTMX is 85. 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. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately CTMX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CTMX were disappointed as the stock returned -20.2% during the third quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.