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Hedge Funds Dropped The Ball On Odonate Therapeutics, Inc. (ODT)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Odonate Therapeutics, Inc. (NASDAQ:ODT) and determine whether hedge funds skillfully traded this stock.

Is Odonate Therapeutics, Inc. (NASDAQ:ODT) the right investment to pursue these days? Investors who are in the know were getting less optimistic. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that ODT 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). ODT was in 13 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with ODT positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are tons of gauges stock traders put to use to assess their stock investments. Two of the most useful gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best fund managers can outpace the broader indices by a healthy amount (see the details here).

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 15 largest gold producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 we’re going to review the recent hedge fund action encompassing Odonate Therapeutics, Inc. (NASDAQ:ODT).

What does smart money think about Odonate Therapeutics, Inc. (NASDAQ:ODT)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in ODT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ODT A Good Stock To Buy?

More specifically, Tang Capital Management was the largest shareholder of Odonate Therapeutics, Inc. (NASDAQ:ODT), with a stake worth $388.6 million reported as of the end of September. Trailing Tang Capital Management was Redmile Group, which amassed a stake valued at $19.5 million. Driehaus Capital, Samsara BioCapital, and Rock Springs Capital Management 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 Tang Capital Management allocated the biggest weight to Odonate Therapeutics, Inc. (NASDAQ:ODT), around 54.57% of its 13F portfolio. Samsara BioCapital is also relatively very bullish on the stock, earmarking 8.3 percent of its 13F equity portfolio to ODT.

Seeing as Odonate Therapeutics, Inc. (NASDAQ:ODT) has experienced a decline in interest from the smart money, it’s safe to say that there is a sect of money managers that slashed their positions entirely in the first quarter. Interestingly,  Renaissance Technologies dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $0.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Odonate Therapeutics, Inc. (NASDAQ:ODT) but similarly valued. We will take a look at Immunovant, Inc. (NASDAQ:IMVT), Spirit Airlines Incorporated (NASDAQ:SAVE), Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), and U.S. Physical Therapy, Inc. (NYSE:USPH). This group of stocks’ market values match ODT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IMVT 28 146496 6
SAVE 28 86042 -9
BDTX 13 162606 13
USPH 12 33325 -4
Average 20.25 107117 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $471 million in ODT’s case. Immunovant, Inc. (NASDAQ:IMVT) is the most popular stock in this table. On the other hand U.S. Physical Therapy, Inc. (NYSE:USPH) is the least popular one with only 12 bullish hedge fund positions. Odonate Therapeutics, Inc. (NASDAQ:ODT) is not the least popular stock in this group but hedge fund interest is still below 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on ODT as the stock returned 54.6% during 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.