We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Merus N.V. (NASDAQ:MRUS) and determine whether hedge funds skillfully traded this stock.
Merus N.V. (NASDAQ:MRUS) was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. MRUS investors should be aware of a decrease in hedge fund sentiment of late. There were 13 hedge funds in our database with MRUS positions at the end of the previous quarter. Our calculations also showed that MRUS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the new hedge fund action surrounding Merus N.V. (NASDAQ:MRUS).
How have hedgies been trading Merus N.V. (NASDAQ:MRUS)?
At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRUS over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Merus N.V. (NASDAQ:MRUS) was held by Biotechnology Value Fund / BVF Inc, which reported holding $42.9 million worth of stock at the end of September. It was followed by Baker Bros. Advisors with a $24.7 million position. Other investors bullish on the company included EcoR1 Capital, Driehaus Capital, and Aquilo Capital Management. In terms of the portfolio weights assigned to each position Biotechnology Value Fund / BVF Inc allocated the biggest weight to Merus N.V. (NASDAQ:MRUS), around 4% of its 13F portfolio. Aquilo Capital Management is also relatively very bullish on the stock, designating 3.63 percent of its 13F equity portfolio to MRUS.
Because Merus N.V. (NASDAQ:MRUS) has faced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of funds that decided to sell off their full holdings heading into Q4. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, valued at about $0.2 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund sold off about $0 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Merus N.V. (NASDAQ:MRUS). We will take a look at Triumph Group Inc (NYSE:TGI), PDL BioPharma Inc. (NASDAQ:PDLI), MRC Global Inc (NYSE:MRC), and Pitney Bowes Inc. (NYSE:PBI). This group of stocks’ market valuations are similar to MRUS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $132 million in MRUS’s case. Triumph Group Inc (NYSE:TGI) is the most popular stock in this table. On the other hand PDL BioPharma Inc. (NASDAQ:PDLI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Merus N.V. (NASDAQ:MRUS) is even less popular than PDLI. Hedge funds clearly dropped the ball on MRUS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MRUS as the stock returned 33% in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.