How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding IVERIC bio, Inc. (NASDAQ:ISEE) and determine whether hedge funds had an edge regarding this stock.
IVERIC bio, Inc. (NASDAQ:ISEE) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. ISEE investors should be aware of an increase in hedge fund interest recently. There were 23 hedge funds in our database with ISEE positions at the end of the first quarter. Our calculations also showed that ISEE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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. 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s take a peek at the new hedge fund action regarding IVERIC bio, Inc. (NASDAQ:ISEE).
Hedge fund activity in IVERIC bio, Inc. (NASDAQ:ISEE)
At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ISEE over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Avoro Capital Advisors (venBio Select Advisor) held the most valuable stake in IVERIC bio, Inc. (NASDAQ:ISEE), which was worth $36.2 million at the end of the third quarter. On the second spot was Vivo Capital which amassed $30.4 million worth of shares. Deerfield Management, Consonance Capital Management, and Perceptive Advisors 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 Stonepine Capital allocated the biggest weight to IVERIC bio, Inc. (NASDAQ:ISEE), around 27.06% of its 13F portfolio. Samsara BioCapital is also relatively very bullish on the stock, designating 5.53 percent of its 13F equity portfolio to ISEE.
Consequently, specific money managers have been driving this bullishness. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, created the biggest position in IVERIC bio, Inc. (NASDAQ:ISEE). Avoro Capital Advisors (venBio Select Advisor) had $36.2 million invested in the company at the end of the quarter. Albert Cha and Frank Kung’s Vivo Capital also initiated a $30.4 million position during the quarter. The other funds with brand new ISEE positions are Alan Frazier’s Frazier Healthcare Partners, Arsani William’s Logos Capital, and Farallon Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as IVERIC bio, Inc. (NASDAQ:ISEE) but similarly valued. We will take a look at Hawkins, Inc. (NASDAQ:HWKN), Bridge Bancorp, Inc. (NASDAQ:BDGE), Central Pacific Financial Corp. (NYSE:CPF), Hudson Ltd. (NYSE:HUD), BioSpecifics Technologies Corp. (NASDAQ:BSTC), KNOT Offshore Partners LP (NYSE:KNOP), and ChannelAdvisor Corp (NYSE:ECOM). This group of stocks’ market caps are similar to ISEE’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 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $263 million in ISEE’s case. Hudson Ltd. (NYSE:HUD) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks IVERIC bio, Inc. (NASDAQ:ISEE) is more popular among hedge funds. Our overall hedge fund sentiment score for ISEE is 84.5. 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 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Unfortunately ISEE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ISEE were disappointed as the stock returned 5.1% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.