Hedge Funds Are Coming Back To Pacific Biosciences of California, Inc. (PACB)

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 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. Stocks kept going up since then. In this article we look at how hedge funds traded Pacific Biosciences of California, Inc. (NASDAQ:PACB) and determine whether the smart money was really smart about this stock.

Is Pacific Biosciences of California, Inc. (NASDAQ:PACB) a great investment now? The smart money was getting more bullish. The number of long hedge fund positions inched up by 4 lately. Pacific Biosciences of California, Inc. (NASDAQ:PACB) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 23. Our calculations also showed that PACB 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). There were 18 hedge funds in our database with PACB positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.


Larry Robbins of Glenview Capital

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 take a glance at the new hedge fund action regarding Pacific Biosciences of California, Inc. (NASDAQ:PACB).

How have hedgies been trading Pacific Biosciences of California, Inc. (NASDAQ:PACB)?

At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PACB over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Water Island Capital held the most valuable stake in Pacific Biosciences of California, Inc. (NASDAQ:PACB), which was worth $18.7 million at the end of the third quarter. On the second spot was Polar Capital which amassed $12.9 million worth of shares. Glenview Capital, Farallon 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 Water Island Capital allocated the biggest weight to Pacific Biosciences of California, Inc. (NASDAQ:PACB), around 1.71% of its 13F portfolio. Havens Advisors is also relatively very bullish on the stock, designating 1.52 percent of its 13F equity portfolio to PACB.

Consequently, key hedge funds have jumped into Pacific Biosciences of California, Inc. (NASDAQ:PACB) headfirst. AQR Capital Management, managed by Cliff Asness, created the most valuable position in Pacific Biosciences of California, Inc. (NASDAQ:PACB). AQR Capital Management had $0.5 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pacific Biosciences of California, Inc. (NASDAQ:PACB) but similarly valued. These stocks are Merchants Bancorp (NASDAQ:MBIN), Co-Diagnostics, Inc. (NASDAQ:CODX), Capstead Mortgage Corporation (NYSE:CMO), Revlon Inc (NYSE:REV), Ranpak Holdings Corp (NYSE:PACK), Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (NYSE:VLRS), and ADTRAN, Inc. (NASDAQ:ADTN). This group of stocks’ market caps match PACB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MBIN 8 11997 0
CODX 4 6845 -1
CMO 13 59928 1
REV 34 242148 -2
PACK 14 288373 0
VLRS 9 55373 0
ADTN 17 71112 1
Average 14.1 105111 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $75 million in PACB’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Co-Diagnostics, Inc. (NASDAQ:CODX) is the least popular one with only 4 bullish hedge fund positions. Pacific Biosciences of California, Inc. (NASDAQ:PACB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PACB is 67.7. 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. 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 third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on PACB as the stock returned 186.1% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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