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Were Hedge Funds Right About Warming Up To NGM Biopharmaceuticals, Inc. (NGM)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) and determine whether hedge funds had an edge regarding this stock.

NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) investors should be aware of an increase in hedge fund interest of late. Our calculations also showed that NGM 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

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. With all of this in mind we’re going to check out the fresh hedge fund action encompassing NGM Biopharmaceuticals, Inc. (NASDAQ:NGM).

What have hedge funds been doing with NGM Biopharmaceuticals, Inc. (NASDAQ:NGM)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NGM over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, C. Ashton Newhall and James Lim’s Greenspring Associates has the number one position in NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), worth close to $19.4 million, comprising 8% of its total 13F portfolio. The second most bullish fund manager is Marc Schneidman of Aquilo Capital Management, with a $12.9 million position; the fund has 5% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Steve Cohen’s Point72 Asset Management, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Mark Wolfson and Jamie Alexander’s Jasper Ridge Partners. In terms of the portfolio weights assigned to each position Greenspring Associates allocated the biggest weight to NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), around 8.03% of its 13F portfolio. Aquilo Capital Management is also relatively very bullish on the stock, dishing out 5.03 percent of its 13F equity portfolio to NGM.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Aquilo Capital Management, managed by Marc Schneidman, initiated the most valuable position in NGM Biopharmaceuticals, Inc. (NASDAQ:NGM). Aquilo Capital Management had $12.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $12.3 million position during the quarter. The following funds were also among the new NGM investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Renaissance Technologies, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) but similarly valued. We will take a look at Freedom Holding Corp. (NASDAQ:FRHC), Endo International plc (NASDAQ:ENDP), OneSmart International Education Group Limited (NYSE:ONE), and Cadence Bancorporation (NYSE:CADE). All of these stocks’ market caps are similar to NGM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRHC 3 9055 0
ENDP 22 213815 5
ONE 7 64491 -1
CADE 29 66003 7
Average 15.25 88341 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $65 million in NGM’s case. Cadence Bancorporation (NYSE:CADE) is the most popular stock in this table. On the other hand Freedom Holding Corp. (NASDAQ:FRHC) is the least popular one with only 3 bullish hedge fund positions. NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on NGM as the stock returned 60.1% during the second quarter and outperformed the market by an even larger margin.

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