Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
10x Genomics, Inc. (NASDAQ:TXG) was in 19 hedge funds’ portfolios at the end of September. TXG has experienced an increase in hedge fund sentiment in recent months. There were 0 hedge funds in our database with TXG holdings at the end of the previous quarter. Our calculations also showed that TXG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a peek at the new hedge fund action surrounding 10x Genomics, Inc. (NASDAQ:TXG).
What have hedge funds been doing with 10x Genomics, Inc. (NASDAQ:TXG)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19 from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TXG over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Jonathan Soros’s JS Capital has the number one position in 10x Genomics, Inc. (NASDAQ:TXG), worth close to $84.5 million, corresponding to 11.5% of its total 13F portfolio. On JS Capital’s heels is Perceptive Advisors, managed by Joseph Edelman, which holds a $11.1 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions comprise Phill Gross and Robert Atchinson’s Adage Capital Management, Ken Griffin’s Citadel Investment Group and Efrem Kamen’s Pura Vida Investments. In terms of the portfolio weights assigned to each position JS Capital allocated the biggest weight to 10x Genomics, Inc. (NASDAQ:TXG), around 11.51% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 1.59 percent of its 13F equity portfolio to TXG.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. JS Capital, managed by Jonathan Soros, established the largest position in 10x Genomics, Inc. (NASDAQ:TXG). JS Capital had $84.5 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also initiated a $11.1 million position during the quarter. The following funds were also among the new TXG investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Ken Griffin’s Citadel Investment Group, and Efrem Kamen’s Pura Vida Investments.
Let’s check out hedge fund activity in other stocks similar to 10x Genomics, Inc. (NASDAQ:TXG). We will take a look at Macy’s, Inc. (NYSE:M), Western Alliance Bancorporation (NYSE:WAL), Shell Midstream Partners LP (NYSE:SHLX), and PLDT Inc. (NYSE:PHI). This group of stocks’ market valuations match TXG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| M | 28 | 652339 | -3 |
| WAL | 25 | 254686 | -2 |
| SHLX | 6 | 12026 | 1 |
| PHI | 5 | 71651 | 0 |
| Average | 16 | 247676 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $136 million in TXG’s case. Macy’s, Inc. (NYSE:M) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. 10x Genomics, Inc. (NASDAQ:TXG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on TXG as the stock returned 28.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.