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Were Hedge Funds Right About Buying Seattle Genetics, Inc. (SGEN)?

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Seattle Genetics, Inc. (NASDAQ:SGEN) the right pick for your portfolio? Prominent investors are becoming hopeful. The number of long hedge fund bets improved by 1 recently. Our calculations also showed that SGEN isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Felix Baker - Baker Bros.

We’re going to go over the new hedge fund action surrounding Seattle Genetics, Inc. (NASDAQ:SGEN).

Hedge fund activity in Seattle Genetics, Inc. (NASDAQ:SGEN)

At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SGEN over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SGEN_mar2019

According to Insider Monkey’s hedge fund database, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the largest position in Seattle Genetics, Inc. (NASDAQ:SGEN). Baker Bros. Advisors has a $2.8923 billion position in the stock, comprising 23.7% of its 13F portfolio. The second most bullish fund manager is David Goel and Paul Ferri of Matrix Capital Management, with a $178 million position; the fund has 5.9% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Ken Griffin’s Citadel Investment Group, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management.

As industrywide interest jumped, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Seattle Genetics, Inc. (NASDAQ:SGEN). Citadel Investment Group had $68 million invested in the company at the end of the quarter. Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management also initiated a $11.5 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP and Joel Greenblatt’s Gotham Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Seattle Genetics, Inc. (NASDAQ:SGEN) but similarly valued. We will take a look at Steris Plc (NYSE:STE), W.R. Berkley Corporation (NYSE:WRB), Noble Energy, Inc. (NYSE:NBL), and Masco Corporation (NYSE:MAS). This group of stocks’ market valuations are closest to SGEN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STE 22 296557 1
WRB 23 256538 6
NBL 26 625150 0
MAS 34 1007083 -1
Average 26.25 546332 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $546 million. That figure was $3168 million in SGEN’s case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Steris Plc (NYSE:STE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Seattle Genetics, Inc. (NASDAQ:SGEN) is even less popular than STE though hedge fund sentiment improved in the most recent quarter where we have data. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SGEN as the stock returned 41.4% and outperformed the market as well.

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

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