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 Morphic Holding, Inc. (NASDAQ:MORF).
Morphic Holding, Inc. (NASDAQ:MORF) shareholders have witnessed an increase in hedge fund interest in recent months. Morphic Holding, Inc. (NASDAQ:MORF) was in 22 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 15 hedge funds in our database with MORF holdings at the end of December. Our calculations also showed that MORF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Oleg Nodelman of EcoR1 Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s go over the recent hedge fund action surrounding Morphic Holding, Inc. (NASDAQ:MORF).
Do Hedge Funds Think MORF Is A Good Stock To Buy Now?
At the end of March, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 47% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MORF over the last 23 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, EcoR1 Capital was the largest shareholder of Morphic Holding, Inc. (NASDAQ:MORF), with a stake worth $189.8 million reported as of the end of March. Trailing EcoR1 Capital was Perceptive Advisors, which amassed a stake valued at $59.4 million. Marshall Wace LLP, Point72 Asset Management, and Alkeon Capital 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 EcoR1 Capital allocated the biggest weight to Morphic Holding, Inc. (NASDAQ:MORF), around 8.42% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, dishing out 2.72 percent of its 13F equity portfolio to MORF.
As one would reasonably expect, specific money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Morphic Holding, Inc. (NASDAQ:MORF). Marshall Wace LLP had $36.9 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $9.5 million position during the quarter. The following funds were also among the new MORF investors: Matthew L Pinz’s Pinz Capital, Michael Rockefeller and KarláKroeker’s Woodline Partners, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks similar to Morphic Holding, Inc. (NASDAQ:MORF). These stocks are Retail Properties of America Inc (NYSE:RPAI), Inter Parfums, Inc. (NASDAQ:IPAR), CareTrust REIT Inc (NASDAQ:CTRE), Echostar Corporation (NASDAQ:SATS), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), Dream Finders Homes, Inc. (NASDAQ:DFH), and World Fuel Services Corporation (NYSE:INT). All of these stocks’ market caps match MORF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RPAI | 9 | 29224 | 3 |
| IPAR | 9 | 88058 | -3 |
| CTRE | 15 | 81732 | -3 |
| SATS | 28 | 232110 | -3 |
| NGM | 18 | 329277 | 5 |
| DFH | 10 | 54869 | 10 |
| INT | 15 | 85346 | -3 |
| Average | 14.9 | 128659 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $426 million in MORF’s case. Echostar Corporation (NASDAQ:SATS) is the most popular stock in this table. On the other hand Retail Properties of America Inc (NYSE:RPAI) is the least popular one with only 9 bullish hedge fund positions. Morphic Holding, Inc. (NASDAQ:MORF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MORF is 74.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately MORF wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MORF were disappointed as the stock returned -7.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Morphic Holding Inc. (NASDAQ:MORF)
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Disclosure: None. This article was originally published at Insider Monkey.
