Hedge Funds Aren’t Crazy About InVitae Corporation (NVTA)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtInVitae Corporation (NYSE:NVTA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is InVitae Corporation (NYSE:NVTA) worth your attention right now? Prominent investors were taking a pessimistic view. The number of long hedge fund positions retreated by 3 in recent months. Our calculations also showed that NVTA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joseph Edelman of Perceptive 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. Keeping this in mind we’re going to review the new hedge fund action surrounding InVitae Corporation (NYSE:NVTA).

What have hedge funds been doing with InVitae Corporation (NYSE:NVTA)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NVTA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NVTA A Good Stock To Buy?

The largest stake in InVitae Corporation (NYSE:NVTA) was held by Baker Bros. Advisors, which reported holding $124.4 million worth of stock at the end of September. It was followed by Casdin Capital with a $47.6 million position. Other investors bullish on the company included Farallon Capital, Rock Springs Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to InVitae Corporation (NYSE:NVTA), around 5.05% of its 13F portfolio. Baker Bros. Advisors is also relatively very bullish on the stock, dishing out 0.77 percent of its 13F equity portfolio to NVTA.

Because InVitae Corporation (NYSE:NVTA) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies who sold off their entire stakes in the first quarter. At the top of the heap, Israel Englander’s Millennium Management cut the largest position of the 750 funds tracked by Insider Monkey, comprising an estimated $9.3 million in stock, and Joseph Edelman’s Perceptive Advisors was right behind this move, as the fund cut about $5.4 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as InVitae Corporation (NYSE:NVTA) but similarly valued. We will take a look at 2U Inc (NASDAQ:TWOU), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), Allegiant Travel Company (NASDAQ:ALGT), and PROS Holdings, Inc. (NYSE:PRO). This group of stocks’ market caps resemble NVTA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TWOU 14 157558 -4
DRNA 25 281860 -6
ALGT 19 252399 -5
PRO 16 151037 -4
Average 18.5 210714 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $226 million in NVTA’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand 2U Inc (NASDAQ:TWOU) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks InVitae Corporation (NYSE:NVTA) is even less popular than TWOU. Hedge funds clearly dropped the ball on NVTA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on NVTA as the stock returned 121.6% in the second quarter and outperformed the market by an even larger margin.

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