Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Fate Therapeutics Inc (NASDAQ:FATE) has seen an increase in hedge fund sentiment in recent months. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds.
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to check out the latest hedge fund action regarding Fate Therapeutics Inc (NASDAQ:FATE).
What have hedge funds been doing with Fate Therapeutics Inc (NASDAQ:FATE)?
At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FATE over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Fate Therapeutics Inc (NASDAQ:FATE) was held by Redmile Group, which reported holding $182 million worth of stock at the end of March. It was followed by Casdin Capital with a $44.8 million position. Other investors bullish on the company included Farallon Capital, Deerfield Management, and Millennium Management.
As one would reasonably expect, specific money managers have jumped into Fate Therapeutics Inc (NASDAQ:FATE) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Fate Therapeutics Inc (NASDAQ:FATE). Point72 Asset Management had $8.8 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $1.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Brian Ashford-Russell and Tim Woolley’s Polar Capital.
Let’s now review hedge fund activity in other stocks similar to Fate Therapeutics Inc (NASDAQ:FATE). We will take a look at Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), AAR Corp. (NYSE:AIR), Keane Group, Inc. (NYSE:FRAC), and Viad Corp (NYSE:VVI). 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 |
|---|---|---|---|
| CRZO | 15 | 114113 | 2 |
| AIR | 23 | 113938 | 9 |
| FRAC | 28 | 554730 | 2 |
| VVI | 13 | 145979 | -2 |
| Average | 19.75 | 232190 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $414 million in FATE’s case. Keane Group, Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Viad Corp (NYSE:VVI) is the least popular one with only 13 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on FATE as the stock returned 13.5% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
