“Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Loxo Oncology Inc (NASDAQ:LOXO) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Loxo Oncology Inc (NASDAQ:LOXO) shareholders have witnessed a decrease in hedge fund sentiment in recent months. LOXO was in 30 hedge funds’ portfolios at the end of the third quarter of 2018. There were 32 hedge funds in our database with LOXO positions at the end of the previous quarter. Our calculations also showed that LOXO isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a glance at the new hedge fund action encompassing Loxo Oncology Inc (NASDAQ:LOXO).
How have hedgies been trading Loxo Oncology Inc (NASDAQ:LOXO)?
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LOXO over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Aisling Capital, managed by Dennis Purcell, holds the largest position in Loxo Oncology Inc (NASDAQ:LOXO). Aisling Capital has a $348.3 million position in the stock, comprising 75.3% of its 13F portfolio. The second most bullish fund manager is Point72 Asset Management, managed by Steve Cohen, which holds a $87.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise Brian Ashford-Russell and Tim Woolley’s Polar Capital, Eli Casdin’s Casdin Capital and Samuel Isaly’s OrbiMed Advisors.
Seeing as Loxo Oncology Inc (NASDAQ:LOXO) has experienced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge funds that slashed their entire stakes heading into Q3. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group dumped the largest investment of the 700 funds monitored by Insider Monkey, valued at an estimated $9.2 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $3.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Loxo Oncology Inc (NASDAQ:LOXO) but similarly valued. We will take a look at Primerica, Inc. (NYSE:PRI), Avnet, Inc. (NYSE:AVT), Compania Cervecerias Unidas S.A. (NYSE:CCU), and Penumbra Inc (NYSE:PEN). This group of stocks’ market valuations are closest to LOXO’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 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $421 million. That figure was $909 million in LOXO’s case. Penumbra Inc (NYSE:PEN) is the most popular stock in this table. On the other hand Primerica, Inc. (NYSE:PRI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Loxo Oncology Inc (NASDAQ:LOXO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.