The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at MyoKardia, Inc. (NASDAQ:MYOK) from the perspective of those elite funds.
MyoKardia, Inc. (NASDAQ:MYOK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Zuora, Inc. (NYSE:ZUO), PDC Energy Inc (NASDAQ:PDCE), and Atlantica Yield plc (NASDAQ:AY) to gather more data points.
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 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s take a look at the recent hedge fund action regarding MyoKardia, Inc. (NASDAQ:MYOK).
How are hedge funds trading MyoKardia, Inc. (NASDAQ:MYOK)?
Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in MYOK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in MyoKardia, Inc. (NASDAQ:MYOK) was held by Farallon Capital, which reported holding $78.2 million worth of stock at the end of September. It was followed by Partner Fund Management with a $75.2 million position. Other investors bullish on the company included Perceptive Advisors, Deerfield Management, and D E Shaw.
Because MyoKardia, Inc. (NASDAQ:MYOK) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few hedge funds that slashed their positions entirely heading into Q3. Intriguingly, Lei Zhang’s Hillhouse Capital Management sold off the biggest stake of the 700 funds monitored by Insider Monkey, comprising about $56 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt., also said goodbye to its stock, about $0.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to MyoKardia, Inc. (NASDAQ:MYOK). We will take a look at Zuora, Inc. (NYSE:ZUO), PDC Energy Inc (NASDAQ:PDCE), Atlantica Yield plc (NASDAQ:AY), and Denali Therapeutics Inc. (NASDAQ:DNLI). This group of stocks’ market values match MYOK’s market value.
|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 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $482 million in MYOK’s case. Atlantica Yield plc (NASDAQ:AY) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 5 bullish hedge fund positions. MyoKardia, Inc. (NASDAQ:MYOK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MYOK wasn’t nearly as popular as these 15 stock and hedge funds that were betting on MYOK were disappointed as the stock returned -1.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.