Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding 10x Genomics, Inc. (NASDAQ:TXG).
10x Genomics, Inc. (NASDAQ:TXG) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that TXG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Kris Jenner of Rock Springs Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the latest hedge fund action regarding 10x Genomics, Inc. (NASDAQ:TXG).
Hedge fund activity in 10x Genomics, Inc. (NASDAQ:TXG)
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -37% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TXG over the last 18 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.
More specifically, JS Capital was the largest shareholder of 10x Genomics, Inc. (NASDAQ:TXG), with a stake worth $127.7 million reported as of the end of September. Trailing JS Capital was Perceptive Advisors, which amassed a stake valued at $16.8 million. Pura Vida Investments, Hillhouse Capital Management, and Rock Springs Capital Management were 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 JS Capital allocated the biggest weight to 10x Genomics, Inc. (NASDAQ:TXG), around 14.71% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, setting aside 1.61 percent of its 13F equity portfolio to TXG.
Seeing as 10x Genomics, Inc. (NASDAQ:TXG) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who were dropping their full holdings heading into Q4. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $7.6 million in stock, and Guy Shahar’s DSAM Partners was right behind this move, as the fund sold off about $3.8 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as 10x Genomics, Inc. (NASDAQ:TXG) but similarly valued. We will take a look at Donaldson Company, Inc. (NYSE:DCI), Woori Financial Group Inc. (NYSE:WF), Nielsen Holdings plc (NYSE:NLSN), and TCF Financial Corporation (NASDAQ:TCF). All of these stocks’ market caps match TXG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DCI | 21 | 175314 | -3 |
| WF | 3 | 3750 | 0 |
| NLSN | 29 | 1163597 | -5 |
| TCF | 24 | 237950 | -7 |
| Average | 19.25 | 395153 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $395 million. That figure was $172 million in TXG’s case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 3 bullish hedge fund positions. 10x Genomics, Inc. (NASDAQ:TXG) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately TXG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TXG investors were disappointed as the stock returned -27.1% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
