Hedge Funds Never Been Less Bullish On ContraFect Corp (CFRX)

In this article you are going to find out whether hedge funds think ContraFect Corp (NASDAQ:CFRX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

ContraFect Corp (NASDAQ:CFRX) was in 5 hedge funds’ portfolios at the end of March. CFRX investors should be aware of a decrease in support from the world’s most elite money managers recently. There were 7 hedge funds in our database with CFRX holdings at the end of the previous quarter. Our calculations also showed that CFRX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the key hedge fund action encompassing ContraFect Corp (NASDAQ:CFRX).

How have hedgies been trading ContraFect Corp (NASDAQ:CFRX)?

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CFRX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ContraFect Corp (NASDAQ:CFRX) was held by Alyeska Investment Group, which reported holding $10.8 million worth of stock at the end of September. It was followed by Adage Capital Management with a $1.7 million position. Other investors bullish on the company included Birchview Capital, 683 Capital Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to ContraFect Corp (NASDAQ:CFRX), around 1.31% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to CFRX.

Since ContraFect Corp (NASDAQ:CFRX) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of hedge funds that slashed their full holdings last quarter. Intriguingly, Mark Lampert’s Biotechnology Value Fund / BVF Inc said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, totaling about $1.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to ContraFect Corp (NASDAQ:CFRX). We will take a look at Fluent, Inc. (NASDAQ:FLNT), Five Star Senior Living Inc. (NASDAQ:FVE), DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), and Champions Oncology, Inc. (NASDAQ:CSBR). This group of stocks’ market valuations resemble CFRX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLNT 7 996 -1
FVE 7 11825 5
DZSI 5 2817 -1
CSBR 1 1310 0
Average 5 4237 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $5 million in CFRX’s case. Fluent, Inc. (NASDAQ:FLNT) is the most popular stock in this table. On the other hand Champions Oncology, Inc. (NASDAQ:CSBR) is the least popular one with only 1 bullish hedge fund positions. ContraFect Corp (NASDAQ:CFRX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately CFRX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CFRX investors were disappointed as the stock returned -10.2% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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