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Hedge Funds Watching Sol-Gel Technologies Ltd. (SLGL) From Afar

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Sol-Gel Technologies Ltd. (NASDAQ:SLGL).

Hedge fund interest in Sol-Gel Technologies Ltd. (NASDAQ:SLGL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SLGL to other stocks including RYB Education, Inc. (NYSE:RYB), Genesis Healthcare Inc (NYSE:GEN), and NL Industries, Inc. (NYSE:NL) to get a better sense of its popularity.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the latest hedge fund action encompassing Sol-Gel Technologies Ltd. (NASDAQ:SLGL).

How have hedgies been trading Sol-Gel Technologies Ltd. (NASDAQ:SLGL)?

Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SLGL over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SLGL_nov2019

More specifically, Kingdon Capital was the largest shareholder of Sol-Gel Technologies Ltd. (NASDAQ:SLGL), with a stake worth $5.1 million reported as of the end of September. Trailing Kingdon Capital was Broadfin Capital, which amassed a stake valued at $5.1 million. Renaissance Technologies was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Broadfin Capital allocated the biggest weight to Sol-Gel Technologies Ltd. (NASDAQ:SLGL), around 0.94% of its portfolio. Kingdon Capital is also relatively very bullish on the stock, dishing out 0.61 percent of its 13F equity portfolio to SLGL.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: DAFNA Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).

Let’s check out hedge fund activity in other stocks similar to Sol-Gel Technologies Ltd. (NASDAQ:SLGL). These stocks are RYB Education, Inc. (NYSE:RYB), Genesis Healthcare Inc (NYSE:GEN), NL Industries, Inc. (NYSE:NL), and BankFinancial Corporation (NASDAQ:BFIN). This group of stocks’ market valuations are closest to SLGL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RYB 4 12884 0
GEN 4 5403 -2
NL 4 994 1
BFIN 5 14445 1
Average 4.25 8432 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $10 million in SLGL’s case. BankFinancial Corporation (NASDAQ:BFIN) is the most popular stock in this table. On the other hand RYB Education, Inc. (NYSE:RYB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Sol-Gel Technologies Ltd. (NASDAQ:SLGL) is even less popular than RYB. Hedge funds dodged a bullet by taking a bearish stance towards SLGL. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately SLGL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SLGL investors were disappointed as the stock returned -11.9% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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