Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Synlogic, Inc. (NASDAQ:SYBX).
Is Synlogic (SYBX) a good stock to buy now? SYBX investors should pay attention to a decrease in hedge fund interest in recent months. Synlogic, Inc. (NASDAQ:SYBX) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 10. Our calculations also showed that SYBX 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely 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. Keeping this in mind let’s take a glance at the recent hedge fund action regarding Synlogic, Inc. (NASDAQ:SYBX).
What does smart money think about Synlogic, Inc. (NASDAQ:SYBX)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in SYBX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, OrbiMed Advisors was the largest shareholder of Synlogic, Inc. (NASDAQ:SYBX), with a stake worth $4.1 million reported as of the end of September. Trailing OrbiMed Advisors was Two Sigma Advisors, which amassed a stake valued at $0.6 million. Millennium Management, Renaissance Technologies, and D E Shaw 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 OrbiMed Advisors allocated the biggest weight to Synlogic, Inc. (NASDAQ:SYBX), around 0.05% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, setting aside 0.0017 percent of its 13F equity portfolio to SYBX.
Due to the fact that Synlogic, Inc. (NASDAQ:SYBX) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers that slashed their positions entirely last quarter. Interestingly, Nathan Fischel’s DAFNA Capital Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, valued at close to $0.8 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Synlogic, Inc. (NASDAQ:SYBX). We will take a look at Infinity Pharmaceuticals Inc. (NASDAQ:INFI), Cinedigm Corp (NASDAQ:CIDM), Amtech Systems, Inc. (NASDAQ:ASYS), Twin Disc, Incorporated (NASDAQ:TWIN), First National Corporation (NASDAQ:FXNC), Inspired Entertainment, Inc. (NASDAQ:INSE), and TRACON Pharmaceuticals Inc (NASDAQ:TCON). This group of stocks’ market valuations match SYBX’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 4.6 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $6 million in SYBX’s case. Amtech Systems, Inc. (NASDAQ:ASYS) is the most popular stock in this table. On the other hand First National Corporation (NASDAQ:FXNC) is the least popular one with only 2 bullish hedge fund positions. Synlogic, Inc. (NASDAQ:SYBX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYBX is 59. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on SYBX as the stock returned 23.8% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.