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Hedge Funds Have Never Been This Bullish On Fate Therapeutics Inc (FATE)

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Fate Therapeutics Inc (NASDAQ:FATE) changed during the first quarter.

Fate Therapeutics Inc (NASDAQ:FATE) was in 23 hedge funds’ portfolios at the end of September. FATE shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 18 hedge funds in our database with FATE holdings at the end of the previous quarter. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the new hedge fund action regarding Fate Therapeutics Inc (NASDAQ:FATE).

How are hedge funds trading Fate Therapeutics Inc (NASDAQ:FATE)?

At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in FATE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FATE_dec2019

According to Insider Monkey’s hedge fund database, Redmile Group, managed by Jeremy Green, holds the most valuable position in Fate Therapeutics Inc (NASDAQ:FATE). Redmile Group has a $174.2 million position in the stock, comprising 5.8% of its 13F portfolio. On Redmile Group’s heels is Israel Englander of Millennium Management, with a $52.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Eli Casdin’s Casdin Capital, Farallon Capital and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 5.83% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, dishing out 5.18 percent of its 13F equity portfolio to FATE.

As industrywide interest jumped, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in Fate Therapeutics Inc (NASDAQ:FATE). Citadel Investment Group had $8.9 million invested in the company at the end of the quarter. Ken Greenberg and David Kim’s Ghost Tree Capital also made a $5.4 million investment in the stock during the quarter. The other funds with brand new FATE positions are Vishal Saluja and Pham Quang’s Endurant Capital Management, Minhua Zhang’s Weld Capital Management, and John W. Rende’s Copernicus Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. These stocks are Accelerate Diagnostics Inc (NASDAQ:AXDX), MRC Global Inc (NYSE:MRC), The Buckle, Inc. (NYSE:BKE), and Orthofix Medical Inc. (NASDAQ:OFIX). This group of stocks’ market valuations are closest to FATE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXDX 6 50627 -4
MRC 12 73329 -3
BKE 12 43909 -2
OFIX 13 69122 0
Average 10.75 59247 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $417 million in FATE’s case. Orthofix Medical Inc. (NASDAQ:OFIX) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Fate Therapeutics Inc (NASDAQ:FATE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FATE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FATE were disappointed as the stock returned 0.6% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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