Hedge Funds Aren’t Done Buying Selecta Biosciences, Inc. (SELB)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Selecta Biosciences, Inc. (NASDAQ:SELB) based on that data.

Is Selecta Biosciences, Inc. (NASDAQ:SELB) a healthy stock for your portfolio? The smart money is taking a bullish view. The number of long hedge fund positions improved by 8 in recent months. Our calculations also showed that SELB 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). SELB was in 21 hedge funds’ portfolios at the end of March. There were 13 hedge funds in our database with SELB holdings at the end of the previous quarter.

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 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 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.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

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 trades like this one. 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. Keeping this in mind we’re going to take a glance at the fresh hedge fund action encompassing Selecta Biosciences, Inc. (NASDAQ:SELB).

What does smart money think about Selecta Biosciences, Inc. (NASDAQ:SELB)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 62% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SELB over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Vivo Capital held the most valuable stake in Selecta Biosciences, Inc. (NASDAQ:SELB), which was worth $18.9 million at the end of the third quarter. On the second spot was Mangrove Partners which amassed $13.4 million worth of shares. EcoR1 Capital, Biotechnology Value Fund / BVF Inc, and OrbiMed 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 Acuta Capital Partners allocated the biggest weight to Selecta Biosciences, Inc. (NASDAQ:SELB), around 2.76% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, dishing out 1.84 percent of its 13F equity portfolio to SELB.

As one would reasonably expect, key money managers have jumped into Selecta Biosciences, Inc. (NASDAQ:SELB) headfirst. Acuta Capital Partners, managed by Manfred Yu, established the biggest position in Selecta Biosciences, Inc. (NASDAQ:SELB). Acuta Capital Partners had $5.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $4.1 million position during the quarter. The other funds with brand new SELB positions are Arsani William’s Logos Capital, Peter Kolchinsky’s RA Capital Management, and Steve Cohen’s Point72 Asset Management.

Let’s now review hedge fund activity in other stocks similar to Selecta Biosciences, Inc. (NASDAQ:SELB). These stocks are Gravity Co., LTD. (NASDAQ:GRVY), Sierra Wireless, Inc. (NASDAQ:SWIR), Old Second Bancorp Inc. (NASDAQ:OSBC), and Noodles & Co (NASDAQ:NDLS). This group of stocks’ market valuations match SELB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRVY 4 2026 -1
SWIR 9 52739 -3
OSBC 11 16347 0
NDLS 14 52490 -2
Average 9.5 30901 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $95 million in SELB’s case. Noodles & Co (NASDAQ:NDLS) is the most popular stock in this table. On the other hand Gravity Co., LTD. (NASDAQ:GRVY) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Selecta Biosciences, Inc. (NASDAQ:SELB) is more popular among hedge funds. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. Unfortunately SELB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SELB were disappointed as the stock returned 4.4% during the second quarter (through June 17th) 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.