It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 MacroGenics Inc (NASDAQ:MGNX).
MacroGenics Inc (NASDAQ:MGNX) was in 14 hedge funds’ portfolios at the end of September. MGNX has seen a decrease in hedge fund interest lately. There were 19 hedge funds in our database with MGNX holdings at the end of the previous quarter. Our calculations also showed that MGNX 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.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the fresh hedge fund action surrounding MacroGenics Inc (NASDAQ:MGNX).
What does smart money think about MacroGenics Inc (NASDAQ:MGNX)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in MGNX over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in MacroGenics Inc (NASDAQ:MGNX), which was worth $40.1 million at the end of the third quarter. On the second spot was GMT Capital which amassed $17.1 million worth of shares. Renaissance Technologies, 683 Capital Partners, and Citadel Investment Group 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 DAFNA Capital Management allocated the biggest weight to MacroGenics Inc (NASDAQ:MGNX), around 0.96% of its 13F portfolio. Opus Point Partners Management is also relatively very bullish on the stock, designating 0.69 percent of its 13F equity portfolio to MGNX.
Seeing as MacroGenics Inc (NASDAQ:MGNX) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $1.2 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 5 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MacroGenics Inc (NASDAQ:MGNX) but similarly valued. We will take a look at National Presto Industries Inc. (NYSE:NPK), TechTarget Inc (NASDAQ:TTGT), Nicolet Bankshares Inc. (NASDAQ:NCBS), and Jumia Technologies AG (NYSE:JMIA). All of these stocks’ market caps are similar to MGNX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NPK | 9 | 70014 | -3 |
| TTGT | 14 | 59178 | -2 |
| NCBS | 5 | 9496 | 1 |
| JMIA | 6 | 2284 | -2 |
| Average | 8.5 | 35243 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $92 million in MGNX’s case. TechTarget Inc (NASDAQ:TTGT) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 5 bullish hedge fund positions. MacroGenics Inc (NASDAQ:MGNX) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MGNX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MGNX were disappointed as the stock returned -25.8% during the fourth quarter (through the end of November) 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.
