Is Veracyte Inc (VCYT) Going to Burn These Hedge Funds?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Veracyte Inc (NASDAQ:VCYT) makes for a good investment right now.

Is Veracyte Inc (NASDAQ:VCYT) a marvelous investment today? Prominent investors were in a bullish mood. The number of bullish hedge fund bets inched up by 4 in recent months. Veracyte Inc (NASDAQ:VCYT) was in 19 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that VCYT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 15 hedge funds in our database with VCYT positions at the end of the fourth quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Charles Clough of Clough Capital Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now we’re going to review the fresh hedge fund action surrounding Veracyte Inc (NASDAQ:VCYT).

Do Hedge Funds Think VCYT Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VCYT over the last 23 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is VCYT A Good Stock To Buy?

Among these funds, ARK Investment Management held the most valuable stake in Veracyte Inc (NASDAQ:VCYT), which was worth $409.4 million at the end of the fourth quarter. On the second spot was Matrix Capital Management which amassed $160 million worth of shares. Alyeska Investment Group, D E Shaw, and Clough Capital Partners 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 Matrix Capital Management allocated the biggest weight to Veracyte Inc (NASDAQ:VCYT), around 1.85% of its 13F portfolio. SilverArc Capital is also relatively very bullish on the stock, setting aside 1.76 percent of its 13F equity portfolio to VCYT.

As one would reasonably expect, key hedge funds were breaking ground themselves. Matrix Capital Management, managed by David Goel and Paul Ferri, created the biggest position in Veracyte Inc (NASDAQ:VCYT). Matrix Capital Management had $160 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $9.8 million position during the quarter. The other funds with new positions in the stock are Charles Clough’s Clough Capital Partners, Ken Fisher’s Fisher Asset Management, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks similar to Veracyte Inc (NASDAQ:VCYT). We will take a look at Yalla Group Limited (NYSE:YALA), Riot Blockchain, Inc (NASDAQ:RIOT), Agios Pharmaceuticals Inc (NASDAQ:AGIO), Viavi Solutions Inc (NASDAQ:VIAV), LivaNova PLC (NASDAQ:LIVN), Texas Capital Bancshares Inc (NASDAQ:TCBI), and Altra Industrial Motion Corp. (NASDAQ:AIMC). This group of stocks’ market caps are closest to VCYT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YALA 10 26724 1
RIOT 12 112604 5
AGIO 22 547051 -4
VIAV 28 281525 1
LIVN 28 694228 -2
TCBI 29 300284 19
AIMC 18 34178 3
Average 21 285228 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $637 million in VCYT’s case. Texas Capital Bancshares Inc (NASDAQ:TCBI) is the most popular stock in this table. On the other hand Yalla Group Limited (NYSE:YALA) is the least popular one with only 10 bullish hedge fund positions. Veracyte Inc (NASDAQ:VCYT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VCYT is 56.4. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately VCYT wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); VCYT investors were disappointed as the stock returned -29.1% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.