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Were Hedge Funds Right About Dumping Forty Seven, Inc. (FTSV)?

“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.

Forty Seven, Inc. (NASDAQ:FTSV) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that ftsv isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Griffin CITADEL INVESTMENT GROUP

Let’s take a look at the fresh hedge fund action encompassing Forty Seven, Inc. (NASDAQ:FTSV).

How have hedgies been trading Forty Seven, Inc. (NASDAQ:FTSV)?

At Q4’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FTSV 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.

No of Hedge Funds with FTSV Positions

More specifically, Adage Capital Management was the largest shareholder of Forty Seven, Inc. (NASDAQ:FTSV), with a stake worth $7.4 million reported as of the end of December. Trailing Adage Capital Management was Bourgeon Capital, which amassed a stake valued at $6.8 million. Citadel Investment Group, Baker Bros. Advisors, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Forty Seven, Inc. (NASDAQ:FTSV) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few hedgies that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Oleg Nodelman’s EcoR1 Capital sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $1.5 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also said goodbye to its stock, about $0.8 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Forty Seven, Inc. (NASDAQ:FTSV) but similarly valued. These stocks are Whitestone REIT (NYSE:WSR), Matrix Service Co (NASDAQ:MTRX), RISE Education Cayman Ltd (NASDAQ:REDU), and Mobileiron Inc (NASDAQ:MOBL). This group of stocks’ market values match FTSV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSR 6 15615 3
MTRX 19 46462 7
REDU 4 8795 -1
MOBL 16 93695 4
Average 11.25 41142 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $24 million in FTSV’s case. Matrix Service Co (NASDAQ:MTRX) is the most popular stock in this table. On the other hand RISE Education Cayman Ltd (NASDAQ:REDU) is the least popular one with only 4 bullish hedge fund positions. Forty Seven, Inc. (NASDAQ:FTSV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FTSV wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); FTSV investors were disappointed as the stock returned 14.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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