Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Novavax, Inc. (NASDAQ:NVAX) was in 12 hedge funds’ portfolios at the end of the third quarter of 2018. NVAX investors should be aware of an increase in hedge fund sentiment recently. There were 11 hedge funds in our database with NVAX positions at the end of the previous quarter. Our calculations also showed that nvax isn’t among the 30 most popular stocks among hedge funds.
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 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a look at the fresh hedge fund action regarding Novavax, Inc. (NASDAQ:NVAX).
Hedge fund activity in Novavax, Inc. (NASDAQ:NVAX)
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NVAX over the last 13 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 upping their holdings significantly (or already accumulated large positions).
More specifically, Baker Bros. Advisors was the largest shareholder of Novavax, Inc. (NASDAQ:NVAX), with a stake worth $8.9 million reported as of the end of September. Trailing Baker Bros. Advisors was Rock Springs Capital Management, which amassed a stake valued at $6.1 million. Millennium Management, Two Sigma Advisors, and DAFNA Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Baker Bros. Advisors, managed by Julian Baker and Felix Baker, established the largest position in Novavax, Inc. (NASDAQ:NVAX). Baker Bros. Advisors had $8.9 million invested in the company at the end of the quarter. Efrem Kamen’s Pura Vida Investments also initiated a $0.9 million position during the quarter. The following funds were also among the new NVAX investors: Efrem Kamen’s Pura Vida Investments and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Novavax, Inc. (NASDAQ:NVAX) but similarly valued. These stocks are RISE Education Cayman Ltd (NASDAQ:REDU), Pacific Biosciences of California, Inc. (NASDAQ:PACB), Green Plains Inc. (NASDAQ:GPRE), and Mesa Laboratories, Inc. (NASDAQ:MLAB). All of these stocks’ market caps match NVAX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REDU | 5 | 27518 | -5 |
| PACB | 16 | 199496 | 4 |
| GPRE | 13 | 127719 | 1 |
| MLAB | 10 | 50808 | 2 |
| Average | 11 | 101385 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $23 million in NVAX’s case. Pacific Biosciences of California, Inc. (NASDAQ:PACB) is the most popular stock in this table. On the other hand RISE Education Cayman Ltd (NASDAQ:REDU) is the least popular one with only 5 bullish hedge fund positions. Novavax, Inc. (NASDAQ:NVAX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PACB might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
