Hedge Funds Have Never Been This Bullish On Morphic Holding, Inc. (MORF)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Morphic Holding, Inc. (NASDAQ:MORF).

Morphic Holding, Inc. (NASDAQ:MORF) was in 6 hedge funds’ portfolios at the end of June. MORF has seen an increase in support from the world’s most elite money managers in recent months. There were 0 hedge funds in our database with MORF positions at the end of the previous quarter. Our calculations also showed that MORF isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the key hedge fund action encompassing Morphic Holding, Inc. (NASDAQ:MORF).

How have hedgies been trading Morphic Holding, Inc. (NASDAQ:MORF)?

Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6 from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in MORF a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Oleg Nodelman EcoR1 Capital

Among these funds, EcoR1 Capital held the most valuable stake in Morphic Holding, Inc. (NASDAQ:MORF), which was worth $44.9 million at the end of the second quarter. On the second spot was Perceptive Advisors which amassed $12.9 million worth of shares. Moreover, Citadel Investment Group, Alyeska Investment Group, and DAFNA Capital Management were also bullish on Morphic Holding, Inc. (NASDAQ:MORF), allocating a large percentage of their portfolios to this stock.

Consequently, key money managers have been driving this bullishness. EcoR1 Capital, managed by Oleg Nodelman, assembled the most outsized position in Morphic Holding, Inc. (NASDAQ:MORF). EcoR1 Capital had $44.9 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also initiated a $12.9 million position during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Anand Parekh’s Alyeska Investment Group, and Nathan Fischel’s DAFNA Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Morphic Holding, Inc. (NASDAQ:MORF) but similarly valued. These stocks are Live Oak Bancshares Inc (NASDAQ:LOB), Retail Value Inc. (NYSE:RVI), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), and Peoples Bancorp Inc. (NASDAQ:PEBO). This group of stocks’ market valuations resemble MORF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LOB 6 33226 -4
RVI 17 78786 0
LXRX 11 18702 -1
PEBO 7 26726 -2
Average 10.25 39360 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $63 million in MORF’s case. Retail Value Inc. (NYSE:RVI) is the most popular stock in this table. On the other hand Live Oak Bancshares Inc (NASDAQ:LOB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Morphic Holding, Inc. (NASDAQ:MORF) is even less popular than LOB. Hedge funds dodged a bullet by taking a bearish stance towards MORF. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MORF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MORF investors were disappointed as the stock returned -8.6% during the third 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 many of these stocks already outperformed the market so far in 2019.

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