Hedge Funds Are Getting Crazy About Catalyst Biosciences Inc (CBIO)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Catalyst Biosciences Inc (NASDAQ:CBIO) and determine whether hedge funds skillfully traded this stock.

Catalyst Biosciences Inc (NASDAQ:CBIO) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CBIO has experienced an increase in hedge fund interest recently. There were 12 hedge funds in our database with CBIO positions at the end of the first quarter. Our calculations also showed that CBIO 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).

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.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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 we’re going to analyze the fresh hedge fund action encompassing Catalyst Biosciences Inc (NASDAQ:CBIO).

How are hedge funds trading Catalyst Biosciences Inc (NASDAQ:CBIO)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CBIO over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Catalyst Biosciences Inc (NASDAQ:CBIO) was held by Nantahala Capital Management, which reported holding $10.7 million worth of stock at the end of September. It was followed by Acuta Capital Partners with a $8.8 million position. Other investors bullish on the company included Millennium Management, Stonepine Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to Catalyst Biosciences Inc (NASDAQ:CBIO), around 6.23% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, designating 2.54 percent of its 13F equity portfolio to CBIO.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the largest position in Catalyst Biosciences Inc (NASDAQ:CBIO). Alyeska Investment Group had $1.3 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Catalyst Biosciences Inc (NASDAQ:CBIO) but similarly valued. We will take a look at Level One Bancorp, Inc. (NASDAQ:LEVL), Global Ship Lease, Inc. (NYSE:GSL), ESSA Pharma Inc. (NASDAQ:EPIX), Olympic Steel, Inc. (NASDAQ:ZEUS), Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA), TD Holdings, Inc. (NASDAQ:GLG), and OncoCyte Corporation (NYSE:OCX). This group of stocks’ market valuations resemble CBIO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LEVL 4 1622 1
GSL 4 7536 -2
EPIX 7 40945 3
ZEUS 6 3786 1
AYLA 4 9727 4
GLG 2 322 2
OCX 7 45909 2
Average 4.9 15692 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $41 million in CBIO’s case. ESSA Pharma Inc. (NASDAQ:EPIX) is the most popular stock in this table. On the other hand TD Holdings, Inc. (NASDAQ:GLG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Catalyst Biosciences Inc (NASDAQ:CBIO) is more popular among hedge funds. Our overall hedge fund sentiment score for CBIO is 90. 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 CBIO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CBIO were disappointed as the stock returned -26.7% 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.

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