Were Hedge Funds Right About Crowding Into MyoKardia, Inc. (MYOK)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to MyoKardia, Inc. (NASDAQ:MYOK) changed recently.

MyoKardia, Inc. (NASDAQ:MYOK) investors should be aware of an increase in enthusiasm from smart money in recent months. MyoKardia, Inc. (NASDAQ:MYOK) was in 45 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with MYOK holdings at the end of March. Our calculations also showed that MYOK 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.

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 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 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 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.

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 let’s go over the key hedge fund action encompassing MyoKardia, Inc. (NASDAQ:MYOK).

How are hedge funds trading MyoKardia, Inc. (NASDAQ:MYOK)?

Heading into the third quarter of 2020, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MYOK over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Baker Bros. Advisors held the most valuable stake in MyoKardia, Inc. (NASDAQ:MYOK), which was worth $305.7 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $181.6 million worth of shares. Perceptive Advisors, D E Shaw, and Farallon Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to MyoKardia, Inc. (NASDAQ:MYOK), around 34.31% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, setting aside 6.04 percent of its 13F equity portfolio to MYOK.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in MyoKardia, Inc. (NASDAQ:MYOK). Marshall Wace LLP had $13.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also made a $9.9 million investment in the stock during the quarter. The following funds were also among the new MYOK investors: Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Principal Global Investors’s Columbus Circle Investors.

Let’s now take a look at hedge fund activity in other stocks similar to MyoKardia, Inc. (NASDAQ:MYOK). These stocks are TCF Financial Corporation (NASDAQ:TCF), Western Midstream Partners, LP (NYSE:WES), Life Storage, Inc. (NYSE:LSI), The Descartes Systems Group Inc (NASDAQ:DSGX), Vertiv Holdings Co (NYSE:VRT), MDU Resources Group Inc (NYSE:MDU), and MSA Safety Incorporated (NYSE:MSA). This group of stocks’ market valuations match MYOK’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $1361 million in MYOK’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand The Descartes Systems Group Inc (NASDAQ:DSGX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks MyoKardia, Inc. (NASDAQ:MYOK) is more popular among hedge funds. Our overall hedge fund sentiment score for MYOK 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 MYOK as the stock returned 130.8% 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.