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 Fusion Pharmaceuticals Inc. (NASDAQ:FUSN).
Is FUSN a good stock to buy now? Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) has experienced a decrease in activity from the world’s largest hedge funds recently. Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 19. There were 19 hedge funds in our database with FUSN positions at the end of the second quarter. Our calculations also showed that FUSN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s analyze the fresh hedge fund action encompassing Fusion Pharmaceuticals Inc. (NASDAQ:FUSN).
Do Hedge Funds Think FUSN Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FUSN over the last 21 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Adams Street Partners held the most valuable stake in Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), which was worth $40 million at the end of the third quarter. On the second spot was OrbiMed Advisors which amassed $38.8 million worth of shares. Perceptive Advisors, Deerfield 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 Adams Street Partners allocated the biggest weight to Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), around 10.54% of its 13F portfolio. OrbiMed Advisors is also relatively very bullish on the stock, earmarking 0.49 percent of its 13F equity portfolio to FUSN.
Judging by the fact that Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group sold off the largest position of the “upper crust” of funds followed by Insider Monkey, worth an estimated $5.7 million in stock. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also sold off its stock, about $2.6 million worth. These transactions are interesting, as total hedge fund interest fell by 9 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Fusion Pharmaceuticals Inc. (NASDAQ:FUSN). These stocks are Extreme Networks, Inc (NASDAQ:EXTR), CymaBay Therapeutics Inc (NASDAQ:CBAY), Tredegar Corporation (NYSE:TG), The Bancorp, Inc. (NASDAQ:TBBK), FutureFuel Corp. (NYSE:FF), Varex Imaging Corporation (NASDAQ:VREX), and Northern Dynasty Minerals Ltd. (NYSE:NAK). This group of stocks’ market caps are similar to FUSN’s market cap.
|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 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $140 million in FUSN’s case. Varex Imaging Corporation (NASDAQ:VREX) is the most popular stock in this table. On the other hand Northern Dynasty Minerals Ltd. (NYSE:NAK) is the least popular one with only 7 bullish hedge fund positions. Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FUSN is 24.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately FUSN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FUSN investors were disappointed as the stock returned 9% since the end of September (through 12/8) 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 2020.
Disclosure: None. This article was originally published at Insider Monkey.