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Hedge Funds Are Warming Up To Aduro BioTech Inc (ADRO)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Aduro BioTech Inc (NASDAQ:ADRO) based on that data and determine whether they were really smart about the stock.

Aduro BioTech Inc (NASDAQ:ADRO) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Our calculations also showed that ADRO 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.

Today there are several gauges shareholders have at their disposal to value publicly traded companies. A pair of the most innovative gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best money managers can outclass the S&P 500 by a healthy margin (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the new hedge fund action surrounding Aduro BioTech Inc (NASDAQ:ADRO).

What does smart money think about Aduro BioTech Inc (NASDAQ:ADRO)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADRO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is ADRO A Good Stock To Buy?

More specifically, Vivo Capital was the largest shareholder of Aduro BioTech Inc (NASDAQ:ADRO), with a stake worth $14 million reported as of the end of September. Trailing Vivo Capital was Renaissance Technologies, which amassed a stake valued at $12.5 million. Ikarian Capital, Rubric Capital Management, and Two Sigma Advisors 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 Vivo Capital allocated the biggest weight to Aduro BioTech Inc (NASDAQ:ADRO), around 1.27% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, earmarking 0.75 percent of its 13F equity portfolio to ADRO.

Now, specific money managers have been driving this bullishness. Vivo Capital, managed by Albert Cha and Frank Kung, established the most outsized position in Aduro BioTech Inc (NASDAQ:ADRO). Vivo Capital had $14 million invested in the company at the end of the quarter. David Rosen’s Rubric Capital Management also initiated a $2.4 million position during the quarter. The other funds with brand new ADRO positions are Guy Levy’s Soleus Capital and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks similar to Aduro BioTech Inc (NASDAQ:ADRO). These stocks are American Renal Associates Holdings, Inc (NYSE:ARA), Fly Leasing Ltd (NYSE:FLY), Eros International plc (NYSE:EROS), and Callon Petroleum Company (NYSE:CPE). This group of stocks’ market valuations resemble ADRO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARA 6 124445 0
FLY 13 23610 -1
EROS 8 18249 -3
CPE 17 12018 -10
Average 11 44581 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $41 million in ADRO’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand American Renal Associates Holdings, Inc (NYSE:ARA) is the least popular one with only 6 bullish hedge fund positions. Aduro BioTech Inc (NASDAQ:ADRO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ADRO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ADRO investors were disappointed as the stock returned -15.7% during the second 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.