Hedge Funds Have Never Been This Bullish On NanoString Technologies Inc (NSTG)

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about NanoString Technologies Inc (NASDAQ:NSTG).

Is NanoString Technologies Inc (NASDAQ:NSTG) undervalued? Hedge funds are getting more optimistic. The number of bullish hedge fund bets improved by 7 lately. Our calculations also showed that nstg isn’t among the 30 most popular stocks among hedge funds. NSTG was in 22 hedge funds’ portfolios at the end of March. There were 15 hedge funds in our database with NSTG positions at the end of the previous quarter.

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.

Millennium Management, Catapult Capital Management

We’re going to analyze the key hedge fund action regarding NanoString Technologies Inc (NASDAQ:NSTG).

How are hedge funds trading NanoString Technologies Inc (NASDAQ:NSTG)?

Heading into the second quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 47% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in NSTG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with NSTG Positions

According to Insider Monkey’s hedge fund database, Brian Ashford-Russell and Tim Woolley’s Polar Capital has the largest position in NanoString Technologies Inc (NASDAQ:NSTG), worth close to $17.9 million, corresponding to 0.2% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $16.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism contain Efrem Kamen’s Pura Vida Investments, Israel Englander’s Millennium Management and Eric Bannasch’s Cadian Capital.

Consequently, specific money managers have jumped into NanoString Technologies Inc (NASDAQ:NSTG) headfirst. Farallon Capital, managed by Thomas Steyer, established the largest position in NanoString Technologies Inc (NASDAQ:NSTG). Farallon Capital had $9.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $5.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Jim Simons’s Renaissance Technologies, and Andrew Sandler’s Sandler Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NanoString Technologies Inc (NASDAQ:NSTG) but similarly valued. We will take a look at DMC Global Inc. (NASDAQ:BOOM), Party City Holdco Inc (NYSE:PRTY), Everi Holdings Inc (NYSE:EVRI), and INTL Fcstone Inc (NASDAQ:INTL). This group of stocks’ market valuations match NSTG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOOM 14 86851 2
PRTY 19 69139 1
EVRI 26 244606 0
INTL 15 78246 2
Average 18.5 119711 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $144 million in NSTG’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand DMC Global Inc. (NASDAQ:BOOM) is the least popular one with only 14 bullish hedge fund positions. NanoString Technologies Inc (NASDAQ:NSTG) 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 NSTG as the stock returned 15% 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.