The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Mereo BioPharma Group plc (NASDAQ:MREO) based on those filings.
Is MREO a good stock to buy now? Mereo BioPharma Group plc (NASDAQ:MREO) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 7. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MREO has seen an increase in enthusiasm from smart money in recent months. There were 7 hedge funds in our database with MREO holdings at the end of June. Our calculations also showed that MREO 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a 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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind we’re going to review the new hedge fund action surrounding Mereo BioPharma Group plc (NASDAQ:MREO).
Hedge fund activity in Mereo BioPharma Group plc (NASDAQ:MREO)
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in MREO a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Vivo Capital held the most valuable stake in Mereo BioPharma Group plc (NASDAQ:MREO), which was worth $16.3 million at the end of the third quarter. On the second spot was Hillhouse Capital Management which amassed $4.2 million worth of shares. Point72 Asset Management, Ikarian Capital, and DAFNA 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 Vivo Capital allocated the biggest weight to Mereo BioPharma Group plc (NASDAQ:MREO), around 0.94% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to MREO.
Consequently, specific money managers have jumped into Mereo BioPharma Group plc (NASDAQ:MREO) headfirst. Ikarian Capital, managed by Neil Shahrestani, assembled the largest position in Mereo BioPharma Group plc (NASDAQ:MREO). Ikarian Capital had $0.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0 million position during the quarter. The only other fund with a new position in the stock is Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mereo BioPharma Group plc (NASDAQ:MREO) but similarly valued. These stocks are Axovant Gene Therapies Ltd. (NASDAQ:AXGT), BRT Apartments Corp (NYSE:BRT), Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), Flotek Industries Inc (NYSE:FTK), Territorial Bancorp Inc (NASDAQ:TBNK), Net 1 UEPS Technologies Inc (NASDAQ:UEPS), and Summit Financial Group, Inc. (NASDAQ:SMMF). All of these stocks’ market caps resemble MREO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 8.7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $23 million in MREO’s case. Axovant Gene Therapies Ltd. (NASDAQ:AXGT) is the most popular stock in this table. On the other hand Summit Financial Group, Inc. (NASDAQ:SMMF) is the least popular one with only 3 bullish hedge fund positions. Mereo BioPharma Group plc (NASDAQ:MREO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MREO is 61. 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 31.6% in 2020 through December 2nd and surpassed the market again by 16 percentage points. Unfortunately MREO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MREO investors were disappointed as the stock returned -12.6% since the end of September (through 12/2) 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.
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Disclosure: None. This article was originally published at Insider Monkey.