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 Gossamer Bio, Inc. (NASDAQ:GOSS) and determine whether hedge funds skillfully traded this stock.
Is Gossamer Bio, Inc. (NASDAQ:GOSS) undervalued? The smart money was becoming hopeful. The number of bullish hedge fund bets inched up by 9 recently. Gossamer Bio, Inc. (NASDAQ:GOSS) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GOSS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Keeping this in mind let’s analyze the key hedge fund action encompassing Gossamer Bio, Inc. (NASDAQ:GOSS).
How have hedgies been trading Gossamer Bio, Inc. (NASDAQ:GOSS)?
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 90% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GOSS over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Gossamer Bio, Inc. (NASDAQ:GOSS) was held by Hillhouse Capital Management, which reported holding $96.5 million worth of stock at the end of September. It was followed by Alyeska Investment Group with a $19.4 million position. Other investors bullish on the company included Ikarian Capital, Masters Capital Management, and Clough Capital Partners. In terms of the portfolio weights assigned to each position Integral Health Asset Management allocated the biggest weight to Gossamer Bio, Inc. (NASDAQ:GOSS), around 1.05% of its 13F portfolio. Hillhouse Capital Management is also relatively very bullish on the stock, designating 0.88 percent of its 13F equity portfolio to GOSS.
As industrywide interest jumped, key money managers were breaking ground themselves. Ikarian Capital, managed by Neil Shahrestani, assembled the biggest position in Gossamer Bio, Inc. (NASDAQ:GOSS). Ikarian Capital had $9.2 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also made a $7.8 million investment in the stock during the quarter. The other funds with brand new GOSS positions are Bhagwan Jay Rao’s Integral Health Asset Management, Sander Gerber’s Hudson Bay Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Gossamer Bio, Inc. (NASDAQ:GOSS). These stocks are New York Mortgage Trust, Inc. (NASDAQ:NYMT), Deluxe Corporation (NYSE:DLX), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), M/I Homes Inc (NYSE:MHO), Ferro Corporation (NYSE:FOE), and BGC Partners, Inc. (NASDAQ:BGCP). This group of stocks’ market values resemble GOSS’s market value.
|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 17 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $169 million in GOSS’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is the least popular one with only 11 bullish hedge fund positions. Gossamer Bio, Inc. (NASDAQ:GOSS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GOSS is 63.5. 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 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 beat the market by 19.3 percentage points. Unfortunately GOSS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GOSS were disappointed as the stock returned -4.5% in Q3 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.