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Hedge Funds Are Selling Spring Bank Pharmaceuticals, Inc. (SBPH)

In this article we will check out the progression of hedge fund sentiment towards Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH) investors should be aware of a decrease in enthusiasm from smart money in recent months. SBPH was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. There were 5 hedge funds in our database with SBPH holdings at the end of the previous quarter. Our calculations also showed that SBPH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by more than 51 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action encompassing Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH).

What have hedge funds been doing with Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH)?

At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SBPH over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Biotechnology Value Fund / BVF Inc, managed by Mark Lampert, holds the largest position in Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH). Biotechnology Value Fund / BVF Inc has a $0.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $0.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Anand Parekh’s Alyeska Investment Group, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Biotechnology Value Fund / BVF Inc allocated the biggest weight to Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH), around 0.08% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0003 percent of its 13F equity portfolio to SBPH.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Baker Bros. Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SBPH as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks similar to Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH). These stocks are Teligent, Inc. (NASDAQ:TLGT), Global Eagle Entertainment Inc. (NASDAQ:ENT), Mitcham Industries, Inc. (NASDAQ:MIND), and Pacific Ethanol Inc (NASDAQ:PEIX). This group of stocks’ market valuations are similar to SBPH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TLGT 2 1088 -1
ENT 5 4672 -1
MIND 3 4161 0
PEIX 3 766 0
Average 3.25 2672 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $1 million in SBPH’s case. Global Eagle Entertainment Inc. (NASDAQ:ENT) is the most popular stock in this table. On the other hand Teligent, Inc. (NASDAQ:TLGT) is the least popular one with only 2 bullish hedge fund positions. Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on SBPH as the stock returned 77.4% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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