Were Hedge Funds Right About Crowding Into Immunomedics, Inc. (IMMU)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Immunomedics, Inc. (NASDAQ:IMMU).

Immunomedics, Inc. (NASDAQ:IMMU) was in 48 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. IMMU investors should pay attention to an increase in hedge fund interest in recent months. There were 27 hedge funds in our database with IMMU holdings at the end of March. Our calculations also showed that IMMU isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a peek at the latest hedge fund action regarding Immunomedics, Inc. (NASDAQ:IMMU).

How are hedge funds trading Immunomedics, Inc. (NASDAQ:IMMU)?

At Q2’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 78% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in IMMU over the last 20 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, holds the largest position in Immunomedics, Inc. (NASDAQ:IMMU). Avoro Capital Advisors (venBio Select Advisor) has a $930.3 million position in the stock, comprising 18.4% of its 13F portfolio. Sitting at the No. 2 spot is Palo Alto Investors, managed by William Leland Edwards, which holds a $183.7 million position; the fund has 11% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Panayotis Takis Sparaggis’s Alkeon Capital Management, Steve Cohen’s Point72 Asset Management and Jeremy Green’s Redmile Group. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Immunomedics, Inc. (NASDAQ:IMMU), around 18.39% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, dishing out 11.03 percent of its 13F equity portfolio to IMMU.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Redmile Group, managed by Jeremy Green, established the largest position in Immunomedics, Inc. (NASDAQ:IMMU). Redmile Group had $123.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $60.4 million position during the quarter. The other funds with new positions in the stock are OrbiMed Advisors, Manfred Yu’s Acuta Capital Partners, and Joseph Edelman’s Perceptive Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Immunomedics, Inc. (NASDAQ:IMMU) but similarly valued. We will take a look at Royal Gold, Inc (NASDAQ:RGLD), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), SEI Investments Company (NASDAQ:SEIC), Amdocs Limited (NASDAQ:DOX), ON Semiconductor Corporation (NASDAQ:ON), InterContinental Hotels Group PLC (NYSE:IHG), and Pegasystems Inc. (NASDAQ:PEGA). All of these stocks’ market caps are closest to IMMU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $2295 million in IMMU’s case. SEI Investments Company (NASDAQ:SEIC) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Immunomedics, Inc. (NASDAQ:IMMU) is more popular among hedge funds. Our overall hedge fund sentiment score for IMMU is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on IMMU as the stock returned 147.9% since the end of June (through 10/23) 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.

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