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Were Hedge Funds Right About Fate Therapeutics Inc (FATE)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Fate Therapeutics Inc (NASDAQ:FATE).

Is Fate Therapeutics Inc (NASDAQ:FATE) undervalued? The smart money is in a bearish mood. The number of long hedge fund positions were cut by 2 lately. Our calculations also showed that FATE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

To the average investor there are dozens of methods stock traders use to analyze stocks. A couple of the most innovative methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best money managers can outpace the market by a very impressive margin (see the details here).

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the key hedge fund action regarding Fate Therapeutics Inc (NASDAQ:FATE).

How have hedgies been trading Fate Therapeutics Inc (NASDAQ:FATE)?

Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in FATE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Fate Therapeutics Inc (NASDAQ:FATE) was held by Redmile Group, which reported holding $219.5 million worth of stock at the end of September. It was followed by Casdin Capital with a $49.9 million position. Other investors bullish on the company included Farallon Capital, Deerfield Management, and Millennium Management. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 5.25% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 4.59 percent of its 13F equity portfolio to FATE.

Due to the fact that Fate Therapeutics Inc (NASDAQ:FATE) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that slashed their full holdings by the end of the third quarter. It’s worth mentioning that Christopher James’s Partner Fund Management cut the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $13.7 million in stock, and Brian Ashford-Russell and Tim Woolley’s Polar Capital was right behind this move, as the fund sold off about $2.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fate Therapeutics Inc (NASDAQ:FATE) but similarly valued. These stocks are Oceaneering International, Inc. (NYSE:OII), Meredith Corporation (NYSE:MDP), Theravance Biopharma Inc (NASDAQ:TBPH), and Guess’, Inc. (NYSE:GES). This group of stocks’ market valuations match FATE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OII 24 142400 2
MDP 18 197054 -2
TBPH 13 302473 7
GES 20 118106 0
Average 18.75 190008 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $465 million in FATE’s case. Oceaneering International, Inc. (NYSE:OII) is the most popular stock in this table. On the other hand Theravance Biopharma Inc (NASDAQ:TBPH) is the least popular one with only 13 bullish hedge fund positions. Fate Therapeutics Inc (NASDAQ:FATE) 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on FATE as the stock returned 35.9% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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