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 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of resTORbio, Inc. (NASDAQ:TORC) and see how the stock is affected by the recent hedge fund activity.
resTORbio, Inc. (NASDAQ:TORC) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. TORC was in 4 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with TORC positions at the end of the previous quarter. Our calculations also showed that TORC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 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.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing resTORbio, Inc. (NASDAQ:TORC).
How have hedgies been trading resTORbio, Inc. (NASDAQ:TORC)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TORC over the last 17 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, OrbiMed Advisors, managed by Samuel Isaly, holds the most valuable position in resTORbio, Inc. (NASDAQ:TORC). OrbiMed Advisors has a $42.7 million position in the stock, comprising 0.8% of its 13F portfolio. The second most bullish fund manager is Segantii Capital, led by Simon Sadler, holding a $6.6 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish contain Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Segantii Capital allocated the biggest weight to resTORbio, Inc. (NASDAQ:TORC), around 0.9% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, setting aside 0.81 percent of its 13F equity portfolio to TORC.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most valuable position in resTORbio, Inc. (NASDAQ:TORC). Millennium Management had $0.3 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as resTORbio, Inc. (NASDAQ:TORC) but similarly valued. We will take a look at Steel Partners Holdings LP (NYSE:SPLP), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), and Motorcar Parts of America, Inc. (NASDAQ:MPAA). This group of stocks’ market valuations resemble TORC’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 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $53 million in TORC’s case. Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) is the most popular stock in this table. On the other hand Steel Partners Holdings LP (NYSE:SPLP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks resTORbio, Inc. (NASDAQ:TORC) is even less popular than SPLP. Hedge funds dodged a bullet by taking a bearish stance towards TORC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TORC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TORC investors were disappointed as the stock returned -86.4% during the fourth quarter (through the end of November) 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.