Were Hedge Funds Right About Neoleukin Therapeutics, Inc. (NLTX)?

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 (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. In this article, we will take a closer look at hedge fund sentiment towards Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of March. At the end of this article we will also compare NLTX to other stocks including Cellcom Israel Ltd. (NYSE:CEL), DBV Technologies SA (NASDAQ:DBVT), and World Acceptance Corp. (NASDAQ:WRLD) to get a better sense of its popularity.

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If you’d ask most stock holders, hedge funds are viewed as worthless, outdated financial vehicles of years past. While there are more than 8000 funds in operation at present, We hone in on the masters of this group, around 850 funds. These money managers direct the lion’s share of all hedge funds’ total capital, and by tracking their inimitable equity investments, Insider Monkey has spotted various investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a gander at the fresh hedge fund action regarding Neoleukin Therapeutics, Inc. (NASDAQ:NLTX).

How are hedge funds trading Neoleukin Therapeutics, Inc. (NASDAQ:NLTX)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in NLTX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) was held by Redmile Group, which reported holding $46 million worth of stock at the end of September. It was followed by EcoR1 Capital with a $42 million position. Other investors bullish on the company included Baker Bros. Advisors, Opaleye Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Neoleukin Therapeutics, Inc. (NASDAQ:NLTX), around 4.39% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, earmarking 4.22 percent of its 13F equity portfolio to NLTX.

Judging by the fact that Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) has witnessed falling interest from hedge fund managers, we can see that there is a sect of money managers that elected to cut their positions entirely by the end of the first quarter. It’s worth mentioning that Arsani William’s Logos Capital dropped the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $0.5 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dumped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) but similarly valued. We will take a look at Cellcom Israel Ltd. (NYSE:CEL), DBV Technologies SA (NASDAQ:DBVT), World Acceptance Corp. (NASDAQ:WRLD), and Horizon Bancorp, Inc. (NASDAQ:HBNC). This group of stocks’ market caps match NLTX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CEL 1 11104 -1
DBVT 10 115317 -3
WRLD 13 101286 -1
HBNC 11 19457 1
Average 8.75 61791 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $197 million in NLTX’s case. World Acceptance Corp. (NASDAQ:WRLD) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Neoleukin Therapeutics, Inc. (NASDAQ:NLTX) is more popular among hedge funds. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately NLTX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NLTX were disappointed as the stock returned -7.8% since the end of the first quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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