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 Urovant Sciences Ltd. (NASDAQ:UROV).
Is Urovant Sciences Ltd. (NASDAQ:UROV) a good stock to buy? Prominent investors were cutting their exposure. The number of bullish hedge fund bets were trimmed by 1 lately. Urovant Sciences Ltd. (NASDAQ:UROV) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 17. Our calculations also showed that UROV 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 we’re going to take a glance at the key hedge fund action regarding Urovant Sciences Ltd. (NASDAQ:UROV).
What does smart money think about Urovant Sciences Ltd. (NASDAQ:UROV)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards UROV over the last 21 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Perceptive Advisors held the most valuable stake in Urovant Sciences Ltd. (NASDAQ:UROV), which was worth $22.1 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $9.1 million worth of shares. Alyeska Investment Group, Samsara BioCapital, and Wildcat 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 Samsara BioCapital allocated the biggest weight to Urovant Sciences Ltd. (NASDAQ:UROV), around 0.41% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to UROV.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified UROV as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Urovant Sciences Ltd. (NASDAQ:UROV) but similarly valued. We will take a look at Utah Medical Products, Inc. (NASDAQ:UTMD), Midland States Bancorp, Inc. (NASDAQ:MSBI), The Manitowoc Company, Inc. (NYSE:MTW), Verona Pharma plc (NASDAQ:VRNA), Spero Therapeutics (NASDAQ:SPRO), Kimball Electronics Inc (NASDAQ:KE), and Casper Sleep Inc. (NYSE:CSPR). This group of stocks’ market values resemble UROV’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 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $40 million in UROV’s case. The Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand Utah Medical Products, Inc. (NASDAQ:UTMD) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Urovant Sciences Ltd. (NASDAQ:UROV) is even less popular than UTMD. Our overall hedge fund sentiment score for UROV is 14.6. 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. Hedge funds clearly dropped the ball on UROV as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on UROV as the stock returned 72.1% since Q3 (through November 27th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.