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Were Hedge Funds Right About Assembly Biosciences Inc (ASMB)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Assembly Biosciences Inc (NASDAQ:ASMB) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Assembly Biosciences Inc (NASDAQ:ASMB) has seen a decrease in hedge fund interest recently. ASMB was in 18 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with ASMB positions at the end of the previous quarter. Our calculations also showed that ASMB isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s view the key hedge fund action encompassing Assembly Biosciences Inc (NASDAQ:ASMB).

What have hedge funds been doing with Assembly Biosciences Inc (NASDAQ:ASMB)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in ASMB a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Consonance Capital Management, managed by Mitchell Blutt, holds the most valuable position in Assembly Biosciences Inc (NASDAQ:ASMB). Consonance Capital Management has a $47.1 million position in the stock, comprising 3.5% of its 13F portfolio. The second most bullish fund manager is Oleg Nodelman of EcoR1 Capital, with a $38.4 million position; 4% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish contain Julian Baker and Felix Baker’s Baker Bros. Advisors, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Assembly Biosciences Inc (NASDAQ:ASMB), around 4.01% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, setting aside 3.51 percent of its 13F equity portfolio to ASMB.

Since Assembly Biosciences Inc (NASDAQ:ASMB) has experienced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of money managers who sold off their entire stakes by the end of the first quarter. Intriguingly, Arsani William’s Logos Capital dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.8 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund said goodbye to about $2.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Assembly Biosciences Inc (NASDAQ:ASMB) but similarly valued. These stocks are Century Communities, Inc (NYSE:CCS), Innate Pharma S.A. (NASDAQ:IPHA), Canaan Inc. (NASDAQ:CAN), and Genesis Energy, L.P. (NYSE:GEL). All of these stocks’ market caps resemble ASMB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCS 17 56037 -6
IPHA 4 39880 0
CAN 3 740 1
GEL 4 7087 3
Average 7 25936 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $179 million in ASMB’s case. Century Communities, Inc (NYSE:CCS) is the most popular stock in this table. On the other hand Canaan Inc. (NASDAQ:CAN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Assembly Biosciences Inc (NASDAQ:ASMB) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on ASMB as the stock returned 59.9% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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