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Hedge Funds Have Never Been This Bullish On CareDx, Inc. (CDNA)

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31. In this article, we will use that wealth of knowledge to determine whether or not CareDx, Inc. (NASDAQ:CDNA) makes for a good investment right now.

CareDx, Inc. (NASDAQ:CDNA) has experienced an increase in activity from the world’s largest hedge funds recently. CDNA was in 25 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with CDNA positions at the end of the previous quarter. Our calculations also showed that CDNA isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Let’s review the key hedge fund action encompassing CareDx, Inc. (NASDAQ:CDNA).

How are hedge funds trading CareDx, Inc. (NASDAQ:CDNA)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2018. On the other hand, there were a total of 14 hedge funds with a bullish position in CDNA a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

CDNA_june2019

Among these funds, OrbiMed Advisors held the most valuable stake in CareDx, Inc. (NASDAQ:CDNA), which was worth $26.1 million at the end of the first quarter. On the second spot was Driehaus Capital which amassed $24.1 million worth of shares. Moreover, Two Sigma Advisors, AQR Capital Management, and Iszo Capital were also bullish on CareDx, Inc. (NASDAQ:CDNA), allocating a large percentage of their portfolios to this stock.

Now, key hedge funds have jumped into CareDx, Inc. (NASDAQ:CDNA) headfirst. OrbiMed Advisors, managed by Samuel Isaly, assembled the biggest position in CareDx, Inc. (NASDAQ:CDNA). OrbiMed Advisors had $26.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new CDNA investors: Minhua Zhang’s Weld Capital Management, David Costen Haley’s HBK Investments, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to CareDx, Inc. (NASDAQ:CDNA). We will take a look at TPG Specialty Lending Inc (NYSE:TSLX), Industrial Logistics Properties Trust (NASDAQ:ILPT), Clovis Oncology Inc (NASDAQ:CLVS), and Fresh Del Monte Produce Inc (NYSE:FDP). This group of stocks’ market valuations are closest to CDNA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSLX 12 75598 2
ILPT 16 181029 -3
CLVS 29 567447 5
FDP 14 43087 -1
Average 17.75 216790 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $140 million in CDNA’s case. Clovis Oncology Inc (NASDAQ:CLVS) is the most popular stock in this table. On the other hand TPG Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 12 bullish hedge fund positions. CareDx, Inc. (NASDAQ:CDNA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CDNA as the stock returned 2.2% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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