Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Iovance Biotherapeutics, Inc. (NASDAQ:IOVA).
Is Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) a healthy stock for your portfolio? Hedge funds are selling. The number of long hedge fund positions decreased by 3 in recent months. Our calculations also showed that IOVA isn’t among the 30 most popular stocks among hedge funds (view the video below).
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the recent hedge fund action encompassing Iovance Biotherapeutics, Inc. (NASDAQ:IOVA).
What does smart money think about Iovance Biotherapeutics, Inc. (NASDAQ:IOVA)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IOVA over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Perceptive Advisors held the most valuable stake in Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), which was worth $292.2 million at the end of the second quarter. On the second spot was venBio Select Advisor which amassed $263.7 million worth of shares. Moreover, Consonance Capital Management, Farallon Capital, and OrbiMed Advisors were also bullish on Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), allocating a large percentage of their portfolios to this stock.
Seeing as Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) has faced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of fund managers who sold off their positions entirely last quarter. It’s worth mentioning that Peter Kolchinsky’s RA Capital Management sold off the largest stake of the 750 funds tracked by Insider Monkey, worth close to $24.8 million in stock. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also said goodbye to its stock, about $11.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) but similarly valued. We will take a look at Chemical Financial Corporation (NASDAQ:CHFC), Coca-Cola Consolidated, Inc. (NASDAQ:COKE), The Medicines Company (NASDAQ:MDCO), and Avista Corp (NYSE:AVA). This group of stocks’ market valuations are similar to IOVA’s market valuation.
|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 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $305 million. That figure was $1311 million in IOVA’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Coca-Cola Consolidated, Inc. (NASDAQ:COKE) is the least popular one with only 11 bullish hedge fund positions. Iovance Biotherapeutics, Inc. (NASDAQ:IOVA) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IOVA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IOVA were disappointed as the stock returned -25.8% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.