Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Summit Therapeutics PLC (NASDAQ:SMMT).
Hedge fund interest in Summit Therapeutics PLC (NASDAQ:SMMT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Exterran Corporation (NYSE:EXTN), LCNB Corp. (NASDAQ:LCNB), and Sol-Gel Technologies Ltd. (NASDAQ:SLGL) to gather more data points. Our calculations also showed that SMMT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 51 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 leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the new hedge fund action regarding Summit Therapeutics PLC (NASDAQ:SMMT).
Hedge fund activity in Summit Therapeutics PLC (NASDAQ:SMMT)
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SMMT over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Lansdowne Partners, managed by Alex Snow, holds the largest position in Summit Therapeutics PLC (NASDAQ:SMMT). Lansdowne Partners has a $10 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $8.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Summit Therapeutics PLC (NASDAQ:SMMT), around 0.56% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to SMMT.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Summit Therapeutics PLC (NASDAQ:SMMT) but similarly valued. We will take a look at Exterran Corporation (NYSE:EXTN), LCNB Corp. (NASDAQ:LCNB), Sol-Gel Technologies Ltd. (NASDAQ:SLGL), and First Internet Bancorp (NASDAQ:INBK). All of these stocks’ market caps are closest to SMMT’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 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $19 million in SMMT’s case. Exterran Corporation (NYSE:EXTN) is the most popular stock in this table. On the other hand LCNB Corp. (NASDAQ:LCNB) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Summit Therapeutics PLC (NASDAQ:SMMT) is even less popular than LCNB. Hedge funds clearly dropped the ball on SMMT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on SMMT as the stock returned 70.5% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.