One of the stocks that stands out on Thursday is Envivio Inc (NASDAQ:ENVI). Even though it has a market cap of only $55 million, it surged by over 114% today on a huge trading volume of 10.40 million shares, compared to an average of just 82,300 shares. Far behind it, is healthcare company Sangamo Biosciences, Inc. (NASDAQ:SGMO), which jumped by over 26% today on a volume roughly five times above average. We will get into the developments behind these moves in a bit, meanwhile it’s important to mention that both companies have strong support from hedge funds, with Envivio Inc (NASDAQ:ENVI) also being in the middle of an activist campaign.
Whether or not hedge funds like a stock is an important metric to follow, because these large investors show a great level of skill and expertise when it comes to picking stocks. Over the last years equity hedge funds have trailed the market by a large margin, but that’s mostly due to their hedging and short positions, which perform poorly in a bull market. Their long positions performed far better, especially their small-cap picks, which have the potential to beat the market by 95 basis points per month on average, as our backtests showed. Our small-cap strategy involves imitating a portfolio of 15 most popular small-cap picks among hedge funds and it has returned 118% since August 2012, beating the S&P 500 ETF (SPY) by around 60 percentage points (read more details here).
Envivio Inc (NASDAQ:ENVI)‘s stock showed such impressive results on the back of the announcement that it had agreed to be acquired by telecom equipment company Ericsson for $125 million. The deal involves a cash tender offer, under the terms of which shareholders of Envivio will be entitled to receive $4.10 in cash. After the deal is completed, Envivio, which provides IP video processing and distribution solutions, will be part of Ericson’s TV and Media Business.
Among the funds from our database, Envivio Inc (NASDAQ:ENVI) was included in the equity portfolios of five investors, which held in aggregate $10.69 million worth of stock, representing over 20% of the company. As stated earlier, Envivio was involved in an activist campaign launched by J. Carlo Cannell’s Cannell Capital. At the end of June, Cannell Capital issued a presentation in which it expressed concerns regarding the company and urged shareholders to vote against two incumbent directors at the Annual Meeting (see more details here). Cannell held 1.70 million shares of Envivio at the end of June, and taking into account that with today’s gains the stock is up by more than 40% year-to-date, the investor will be happy with the latest development. Moreover, the largest shareholder of Envivio Inc (NASDAQ:ENVI) in our database is Edward Gilhuly and Scott Stuart’s Sageview Capital, which owned 2.63 million shares at the end of June. Nevertheless, it’s important to point out that despite today’s move, the stock is still down by more than 70% since its IPO in April 2012.
The appreciation of Sangamo Biosciences, Inc. (NASDAQ:SGMO)‘s stock was fueled by news that its Phase 1 study protocol for a ZFP Therapeutic, as a potential therapy for the treatment for hemophilia B, was approved by the National Institutes of Health’s Recombinant DNA Advisory Committee (RAC). According to a statement issued by the company, the Factor IX program represents the first study of in vivo genome editing.
Sangamo Biosciences, Inc. (NASDAQ:SGMO) is a company that hedge funds like, even though the sentiment is not as strong as towards other, larger healthcare stocks (for example, Allergan PLC (NYSE:AGN) ranked as the most popular stock overall). During the second quarter, the number of funds bullish on the company went up to 22 from 21, but the aggregate value of their holdings slid to $189.72 million from $246.91 million, amid a 44% drop of the stock. Among these, the largest stake was held by Julian Baker and Felix Baker’s Baker Bros. Advisors, which boosted its position in Sangamo Biosciences, Inc. (NASDAQ:SGMO) by 131% on the quarter to 3.23 million shares reported as of the end of June. Peter Kolchinsky‘s RA Capital Management also reported ownership of some 1.22 million shares, and ‘Call’ options underlying other 6.0 million shares. Other funds with long positions in Sangamo at the end of June, included Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management.
This shows that hedge funds like the company, and despite the Sangamo Biosciences, Inc. (NASDAQ:SGMO)’s depreciation, they chose to invest more money. Even though their positions in Sangamo amass small portions of their equity portfolios, the company seems like a good bet now and has a chance to surge even higher if it manages to report positive results from the trials.