Hedge Funds Welcomed NextCure, Inc. (NXTC) With Open Arms

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about NextCure, Inc. (NASDAQ:NXTC).

NextCure, Inc. (NASDAQ:NXTC) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. NXTC was in 8 hedge funds’ portfolios at the end of the second quarter of 2019. There were 0 hedge funds in our database with NXTC positions at the end of the previous quarter. Our calculations also showed that NXTC 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.

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.

Samuel Isaly Orbimed Advisors

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a look at the key hedge fund action surrounding NextCure, Inc. (NASDAQ:NXTC).

What does smart money think about NextCure, Inc. (NASDAQ:NXTC)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8 from the first quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in NXTC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NXTC Positions

More specifically, OrbiMed Advisors was the largest shareholder of NextCure, Inc. (NASDAQ:NXTC), with a stake worth $40.6 million reported as of the end of March. Trailing OrbiMed Advisors was Citadel Investment Group, which amassed a stake valued at $16.4 million. Cormorant Asset Management, Hillhouse Capital Management, and Baker Bros. Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, key money managers were leading the bulls’ herd. OrbiMed Advisors, managed by Samuel Isaly, assembled the most outsized position in NextCure, Inc. (NASDAQ:NXTC). OrbiMed Advisors had $40.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $16.4 million investment in the stock during the quarter. The following funds were also among the new NXTC investors: Bihua Chen’s Cormorant Asset Management, Lei Zhang’s Hillhouse Capital Management, and Julian Baker and Felix Baker’s Baker Bros. Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NextCure, Inc. (NASDAQ:NXTC) but similarly valued. We will take a look at RBB Bancorp (NASDAQ:RBB), Majesco (NASDAQ:MJCO), Westport Fuel Systems Inc. (NASDAQ:WPRT), and Secoo Holding Limited (NASDAQ:SECO). This group of stocks’ market caps are closest to NXTC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBB 5 10320 0
MJCO 3 423 0
WPRT 13 36374 1
SECO 7 18956 -1
Average 7 16518 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $92 million in NXTC’s case. Westport Fuel Systems Inc. (NASDAQ:WPRT) is the most popular stock in this table. On the other hand Majesco (NASDAQ:MJCO) is the least popular one with only 3 bullish hedge fund positions. NextCure, Inc. (NASDAQ:NXTC) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NXTC as the stock returned 105.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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