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Is Editas Medicine, Inc. (EDIT) Going to Burn These Hedge Funds?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Editas Medicine, Inc. (NASDAQ:EDIT).

Is Editas Medicine, Inc. (NASDAQ:EDIT) a buy, sell, or hold? Prominent investors are becoming less confident. The number of long hedge fund positions were cut by 1 recently. Our calculations also showed that EDIT isn’t among the 30 most popular stocks among hedge funds (see the video below). EDIT was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with EDIT holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Flynn Deerfield Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the new hedge fund action encompassing Editas Medicine, Inc. (NASDAQ:EDIT).

What does smart money think about Editas Medicine, Inc. (NASDAQ:EDIT)?

At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in EDIT a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

EDIT_oct2019

Among these funds, Deerfield Management held the most valuable stake in Editas Medicine, Inc. (NASDAQ:EDIT), which was worth $28.7 million at the end of the second quarter. On the second spot was Viking Global which amassed $23 million worth of shares. Moreover, D E Shaw, Casdin Capital, and Valiant Capital were also bullish on Editas Medicine, Inc. (NASDAQ:EDIT), allocating a large percentage of their portfolios to this stock.

Due to the fact that Editas Medicine, Inc. (NASDAQ:EDIT) has experienced falling interest from the smart money, it’s safe to say that there were a few hedgies that decided to sell off their full holdings last quarter. Interestingly, Renaissance Technologies sold off the largest position of the “upper crust” of funds watched by Insider Monkey, valued at about $9.1 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund dumped about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Editas Medicine, Inc. (NASDAQ:EDIT) but similarly valued. We will take a look at Essential Properties Realty Trust, Inc. (NYSE:EPRT), Hollysys Automation Technologies Ltd (NASDAQ:HOLI), TriCo Bancshares (NASDAQ:TCBK), and Sculptor Capital Management, Inc. (NYSE:OZM). All of these stocks’ market caps are similar to EDIT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EPRT 15 111447 2
HOLI 13 68693 -1
TCBK 8 36966 -1
OZM 10 79555 2
Average 11.5 74165 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $115 million in EDIT’s case. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 8 bullish hedge fund positions. Editas Medicine, Inc. (NASDAQ:EDIT) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EDIT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EDIT were disappointed as the stock returned -8.1% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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