We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Ocular Therapeutix Inc (NASDAQ:OCUL).
Is OCUL a good stock to buy now? Ocular Therapeutix Inc (NASDAQ:OCUL) shareholders have witnessed an increase in hedge fund interest lately. Ocular Therapeutix Inc (NASDAQ:OCUL) was in 12 hedge funds’ portfolios at the end of September. The all time high for this statistics is 12. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that OCUL 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.
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 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 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 stocks that are in our short portfolio.
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. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing Ocular Therapeutix Inc (NASDAQ:OCUL).
Do Hedge Funds Think OCUL Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards OCUL over the last 21 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Opaleye Management held the most valuable stake in Ocular Therapeutix Inc (NASDAQ:OCUL), which was worth $45.5 million at the end of the third quarter. On the second spot was RA Capital Management which amassed $20.8 million worth of shares. Ikarian Capital, Citadel Investment Group, and Endurant 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 Opaleye Management allocated the biggest weight to Ocular Therapeutix Inc (NASDAQ:OCUL), around 8.91% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, earmarking 1.88 percent of its 13F equity portfolio to OCUL.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Kamunting Street Capital, managed by Allan Teh, initiated the most valuable position in Ocular Therapeutix Inc (NASDAQ:OCUL). Kamunting Street Capital had $0.7 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ocular Therapeutix Inc (NASDAQ:OCUL) but similarly valued. These stocks are Allegiance Bancshares, Inc. (NASDAQ:ABTX), AVROBIO, Inc. (NASDAQ:AVRO), Golden Star Resources Ltd. (NYSE:GSS), Myers Industries, Inc. (NYSE:MYE), Shoe Carnival, Inc. (NASDAQ:SCVL), Dynavax Technologies Corporation (NASDAQ:DVAX), and HarborOne Bancorp, Inc. (NASDAQ:HONE). This group of stocks’ market valuations are similar to OCUL’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 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $105 million in OCUL’s case. Dynavax Technologies Corporation (NASDAQ:DVAX) is the most popular stock in this table. On the other hand Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the least popular one with only 4 bullish hedge fund positions. Ocular Therapeutix Inc (NASDAQ:OCUL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for OCUL is 57.1. 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. 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 still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on OCUL as the stock returned 155.7% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.