Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS).
Is PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) a good stock to buy now? PHAS was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. PHAS has seen a decrease in enthusiasm from smart money lately. There were 7 hedge funds in our database with PHAS holdings at the end of June. Our calculations also showed that PHAS 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 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. Now let’s check out the new hedge fund action surrounding PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS).
How are hedge funds trading PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS)?
At third quarter’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in PHAS a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Rock Springs Capital Management held the most valuable stake in PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS), which was worth $4.6 million at the end of the third quarter. On the second spot was DAFNA Capital Management which amassed $1.1 million worth of shares. Sabby Capital, Millennium Management, and Citadel Investment Group 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 DAFNA Capital Management allocated the biggest weight to PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS), around 0.37% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to PHAS.
Due to the fact that PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds that decided to sell off their positions entirely in the third quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at close to $0.6 million in stock, and Chen Tianqiao’s Shanda Asset Management was right behind this move, as the fund dumped about $0.1 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) but similarly valued. We will take a look at CB Financial Services, Inc. (NASDAQ:CBFV), Sharps Compliance Corp. (NASDAQ:SMED), Mediwound Ltd (NASDAQ:MDWD), Colony Bankcorp Inc (NASDAQ:CBAN), SMTC Corporation (NASDAQ:SMTX), First Community Corporation (NASDAQ:FCCO), and First Northwest Bancorp (NASDAQ:FNWB). This group of stocks’ market values match PHAS’s market value.
|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 3.4 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $6 million in PHAS’s case. Sharps Compliance Corp. (NASDAQ:SMED) is the most popular stock in this table. On the other hand CB Financial Services, Inc. (NASDAQ:CBFV) is the least popular one with only 2 bullish hedge fund positions. PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PHAS is 66.6. 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 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately PHAS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PHAS were disappointed as the stock returned 7.7% since the end of September (through 11/27) 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.