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Were Hedge Funds Right About Souring On Savara, Inc. (SVRA)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Savara, Inc. (NASDAQ:SVRA) and determine whether hedge funds skillfully traded this stock.

Savara, Inc. (NASDAQ:SVRA) investors should be aware of a decrease in support from the world’s most elite money managers recently. Our calculations also showed that SVRA isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Oleg Nodelman EcoR1 Capital

Oleg Nodelman of EcoR1 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action regarding Savara, Inc. (NASDAQ:SVRA).

Hedge fund activity in Savara, Inc. (NASDAQ:SVRA)

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SVRA over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SVRA A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Farallon Capital has the largest position in Savara, Inc. (NASDAQ:SVRA), worth close to $10.2 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is EcoR1 Capital, led by Oleg Nodelman, holding a $3 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism include Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management and Arsani William’s Logos Capital. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to Savara, Inc. (NASDAQ:SVRA), around 0.45% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to SVRA.

Because Savara, Inc. (NASDAQ:SVRA) has witnessed bearish sentiment from the smart money, we can see that there lies a certain “tier” of money managers who were dropping their full holdings by the end of the first quarter. It’s worth mentioning that  Renaissance Technologies said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $0.4 million in stock. David Harding’s fund, Winton Capital Management, also dropped its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Savara, Inc. (NASDAQ:SVRA). We will take a look at ObsEva SA (NASDAQ:OBSV), Caledonia Mining Corporation Plc (NYSE:CMCL), Northeast Bank (NASDAQ:NBN), and Soleno Therapeutics, Inc. (NASDAQ:SLNO). All of these stocks’ market caps match SVRA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OBSV 8 11506 0
CMCL 3 2199 2
NBN 6 18679 1
SLNO 9 19054 4
Average 6.5 12860 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $20 million in SVRA’s case. Soleno Therapeutics, Inc. (NASDAQ:SLNO) is the most popular stock in this table. On the other hand Caledonia Mining Corporation Plc (NYSE:CMCL) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Savara, Inc. (NASDAQ:SVRA) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately SVRA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SVRA were disappointed as the stock returned 17.5% during the second 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.