Where Do Hedge Funds Stand On Denali Therapeutics Inc. (DNLI)?

In this article we will check out the progression of hedge fund sentiment towards Denali Therapeutics Inc. (NASDAQ:DNLI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Denali Therapeutics Inc. (NASDAQ:DNLI) ready to rally soon? The best stock pickers were becoming more confident. The number of bullish hedge fund bets inched up by 6 lately. Denali Therapeutics Inc. (NASDAQ:DNLI) was in 26 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DNLI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 20 hedge funds in our database with DNLI holdings at the end of December.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Roger Ibbotson of Zebra Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding Denali Therapeutics Inc. (NASDAQ:DNLI).

Do Hedge Funds Think DNLI Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DNLI over the last 23 quarters. So, let’s see 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, Casdin Capital, managed by Eli Casdin, holds the number one position in Denali Therapeutics Inc. (NASDAQ:DNLI). Casdin Capital has a $91.9 million position in the stock, comprising 2.7% of its 13F portfolio. On Casdin Capital’s heels is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $25.8 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Jim Simons’s Euclidean Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP and Renaissance Technologies. In terms of the portfolio weights assigned to each position Euclidean Capital allocated the biggest weight to Denali Therapeutics Inc. (NASDAQ:DNLI), around 6.19% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, dishing out 2.74 percent of its 13F equity portfolio to DNLI.

As one would reasonably expect, specific money managers have jumped into Denali Therapeutics Inc. (NASDAQ:DNLI) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in Denali Therapeutics Inc. (NASDAQ:DNLI). Marshall Wace LLP had $15.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $15.2 million position during the quarter. The other funds with brand new DNLI positions are Paul Tudor Jones’s Tudor Investment Corp, Mika Toikka’s AlphaCrest Capital Management, and Roger Ibbotson’s Zebra Capital Management.

Let’s now review hedge fund activity in other stocks similar to Denali Therapeutics Inc. (NASDAQ:DNLI). We will take a look at TFI International Inc. (NYSE:TFII), Cullen/Frost Bankers, Inc. (NYSE:CFR), ADT Inc. (NYSE:ADT), Axalta Coating Systems Ltd (NYSE:AXTA), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), Redfin Corporation (NASDAQ:RDFN), and Hanesbrands Inc. (NYSE:HBI). All of these stocks’ market caps match DNLI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFII 19 164356 9
CFR 11 18887 -6
ADT 16 283810 -8
AXTA 43 1563342 -3
ARWR 20 151598 -4
RDFN 18 434551 -3
HBI 32 977516 5
Average 22.7 513437 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $513 million. That figure was $251 million in DNLI’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 11 bullish hedge fund positions. Denali Therapeutics Inc. (NASDAQ:DNLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DNLI is 63.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on DNLI as the stock returned 26.5% since the end of Q1 (through 7/9) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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