Were These Hedge Funds Wrong About Buying bluebird bio Inc (BLUE)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to bluebird bio Inc (NASDAQ:BLUE) changed recently.

Is bluebird bio Inc (NASDAQ:BLUE) a bargain? The best stock pickers were becoming hopeful. The number of long hedge fund positions went up by 10 lately. bluebird bio Inc (NASDAQ:BLUE) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that BLUE 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). There were 27 hedge funds in our database with BLUE positions at the end of the first quarter.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

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. With all of this in mind we’re going to review the recent hedge fund action regarding bluebird bio Inc (NASDAQ:BLUE).

How are hedge funds trading bluebird bio Inc (NASDAQ:BLUE)?

At second quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 37% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BLUE over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in bluebird bio Inc (NASDAQ:BLUE) was held by Camber Capital Management, which reported holding $77.8 million worth of stock at the end of June. It was followed by Casdin Capital with a $67.4 million position. Other investors bullish on the company included Armistice Capital, Platinum Asset Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Camber Capital Management allocated the biggest weight to bluebird bio Inc (NASDAQ:BLUE), around 4.45% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 3.99 percent of its 13F equity portfolio to BLUE.

Consequently, key money managers have been driving this bullishness. Camber Capital Management, managed by Stephen DuBois, initiated the most outsized position in bluebird bio Inc (NASDAQ:BLUE). Camber Capital Management had $77.8 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $16.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Mashaal’s Rima Senvest Management, Nathaniel August’s Mangrove Partners, and Noam Gottesman’s GLG Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as bluebird bio Inc (NASDAQ:BLUE) but similarly valued. We will take a look at Enstar Group Ltd. (NASDAQ:ESGR), Rayonier Inc. (NYSE:RYN), UniFirst Corp (NYSE:UNF), Unum Group (NYSE:UNM), Marriott Vacations Worldwide Corporation (NYSE:VAC), South State Corporation (NASDAQ:SSB), and Grupo Aeroportuario del Sureste (NYSE:ASR). This group of stocks’ market caps are similar to BLUE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESGR 12 329338 1
RYN 17 299169 4
UNF 19 86425 2
UNM 22 210972 -3
VAC 24 381087 -1
SSB 24 79638 12
ASR 11 69729 7
Average 18.4 208051 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $389 million in BLUE’s case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste (NYSE:ASR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks bluebird bio Inc (NASDAQ:BLUE) is more popular among hedge funds. Our overall hedge fund sentiment score for BLUE is 89.2. 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. Unfortunately BLUE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BLUE were disappointed as the stock returned -15.3% since the end of the second quarter (through 10/30) 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.