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

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Fate Therapeutics Inc (NASDAQ:FATE).

Fate Therapeutics Inc (NASDAQ:FATE) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. FATE has experienced an increase in hedge fund sentiment of late. There were 24 hedge funds in our database with FATE positions at the end of the first quarter. Our calculations also showed that FATE 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.

In the financial world there are many formulas market participants put to use to value their holdings. A pair of the less known formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the broader indices by a healthy amount (see the details here).

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging 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. Keeping this in mind let’s analyze the recent hedge fund action encompassing Fate Therapeutics Inc (NASDAQ:FATE).

How are hedge funds trading Fate Therapeutics Inc (NASDAQ:FATE)?

At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FATE over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Redmile Group held the most valuable stake in Fate Therapeutics Inc (NASDAQ:FATE), which was worth $433.3 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $120.1 million worth of shares. Citadel Investment Group, Casdin Capital, and Millennium Management 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 Redmile Group allocated the biggest weight to Fate Therapeutics Inc (NASDAQ:FATE), around 8% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, earmarking 6.19 percent of its 13F equity portfolio to FATE.

Now, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the biggest position in Fate Therapeutics Inc (NASDAQ:FATE). Point72 Asset Management had $11.2 million invested in the company at the end of the quarter. Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund also initiated a $7.7 million position during the quarter. The other funds with new positions in the stock are Aaron Cowen’s Suvretta Capital Management, Matthew L Pinz’s Pinz Capital, and Paul Tudor Jones’s Tudor Investment Corp.

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 Viavi Solutions Inc (NASDAQ:VIAV), American States Water Co (NYSE:AWR), Saia Inc (NASDAQ:SAIA), Altair Engineering Inc. (NASDAQ:ALTR), LCI Industries (NYSE:LCII), Louisiana-Pacific Corporation (NYSE:LPX), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks’ market caps match FATE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $986 million in FATE’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 14 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 overall hedge fund sentiment score for FATE is 85.8. 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 gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on FATE as the stock returned 29.4% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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