Were Hedge Funds Right About Chiasma Inc (CHMA)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Chiasma Inc (NASDAQ:CHMA) and determine whether hedge funds skillfully traded this stock.

Chiasma Inc (NASDAQ:CHMA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Cerecor Inc. (NASDAQ:CERC), Orrstown Financial Services, Inc. (NASDAQ:ORRF), and CalAmp Corp. (NASDAQ:CAMP) to gather more data points. Our calculations also showed that CHMA 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.

Today there are several methods stock traders use to evaluate stocks. A couple of the most innovative methods are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the elite investment managers can beat the market by a significant margin (see the details here).

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the fresh hedge fund action encompassing Chiasma Inc (NASDAQ:CHMA).

How have hedgies been trading Chiasma Inc (NASDAQ:CHMA)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in CHMA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the most valuable position in Chiasma Inc (NASDAQ:CHMA). Adage Capital Management has a $10.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Adage Capital Management’s heels is Ikarian Capital, managed by Neil Shahrestani, which holds a $7.6 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions consist of Oleg Nodelman’s EcoR1 Capital, Steve Cohen’s Point72 Asset Management and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to Chiasma Inc (NASDAQ:CHMA), around 2.87% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, earmarking 0.58 percent of its 13F equity portfolio to CHMA.

Due to the fact that Chiasma Inc (NASDAQ:CHMA) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their positions entirely by the end of the first quarter. Interestingly, Ken Greenberg and David Kim’s Ghost Tree Capital dropped the biggest investment of all the hedgies tracked by Insider Monkey, totaling close to $2.1 million in stock. D. E. Shaw’s fund, D E Shaw, also cut its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chiasma Inc (NASDAQ:CHMA) but similarly valued. These stocks are Cerecor Inc. (NASDAQ:CERC), Orrstown Financial Services, Inc. (NASDAQ:ORRF), CalAmp Corp. (NASDAQ:CAMP), and PCB Bancorp (NASDAQ:PCB). This group of stocks’ market valuations are closest to CHMA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CERC 5 76950 1
ORRF 3 6992 1
CAMP 12 93779 3
PCB 6 12407 0
Average 6.5 47532 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $45 million in CHMA’s case. CalAmp Corp. (NASDAQ:CAMP) is the most popular stock in this table. On the other hand Orrstown Financial Services, Inc. (NASDAQ:ORRF) is the least popular one with only 3 bullish hedge fund positions. Chiasma Inc (NASDAQ:CHMA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CHMA as the stock returned 47.4% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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