Why Are Hedge Funds Underweight Xencor Inc (XNCR)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost Group, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of the mass media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

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Xencor Inc (NASDAQ:XNCR) was in 19 hedge funds’ portfolios at the end of September. XNCR has seen an increase in activity from the world’s largest hedge funds in recent months. There were 16 hedge funds in our database with XNCR holdings at the end of the previous quarter. At the end of this article we will also compare XNCR to other stocks including Carmike Cinemas, Inc. (NASDAQ:CKEC), Mag Silver Corp (USA) (NYSEAMEX:MVG), and Xunlei Ltd (NASDAQ:XNET) to get a better sense of its popularity.

Follow Xencor Inc (NASDAQ:XNCR)

In the financial world there are tons of gauges market participants put to use to evaluate their stock investments. Two of the most under-the-radar gauges are hedge fund and insider trading signals. Hedge fund experts at Insider Monkey have shown that, historically, those who follow the best picks of the best fund managers can beat the S&P 500 by a significant amount (see the details here).

Now, we’re going to take a look at the new action regarding Xencor Inc (NASDAQ:XNCR).

What does the smart money think about Xencor Inc (NASDAQ:XNCR)?

Heading into Q4, a total of 19 of the hedge funds tracked by Insider Monkey were long in this stock, which was 19% higher than one quarter earlier. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings substantially.

According to publicly available hedge fund holdings data compiled by Insider Monkey, James E. Flynn’s Deerfield Management has the number one position in Xencor Inc (NASDAQ:XNCR), worth close to $21.9 million, comprising 0.8% of its total 13F portfolio. Coming in second is Perceptive Advisors, led by Joseph Edelman, holding a $21.5 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Other hedge funds that hold long positions include Samuel Isaly’s OrbiMed Advisors, Julian Baker and Felix Baker’s Baker Bros. Advisors, and Peter Kolchinsky’s RA Capital Management.

Now, specific money managers have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, established the most outsized position in Xencor Inc (NASDAQ:XNCR). Renaissance Technologies had $1.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.9 million position during the quarter. The other funds with new positions in the stock are Mike Vranos’ Ellington, and Matthew Tewksbury’s Stevens Capital Management.

Let’s go over hedge fund activity in other stocks similar to Xencor Inc (NASDAQ:XNCR). We will take a look at Carmike Cinemas, Inc. (NASDAQ:CKEC), Mag Silver Corp (USA) (NYSEAMEX:MVG), Xunlei Ltd (NASDAQ:XNET), and Raptor Pharmaceutical Corp. (NASDAQ:RPTP). This group of stocks’ market caps match XNCR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CKEC 26 99288 2
MVG 11 32624 -1
XNET 6 4503 -3
RPTP 21 73378 -1

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $52 million, a full $40 million below the amount invested in Xencor. Carmike Cinemas, Inc. (NASDAQ:CKEC) is the most popular stock in this table. On the other hand Xunlei Ltd (NASDAQ:XNET) is the least popular one with only six bullish hedge fund positions. Xencor Inc (NASDAQ:XNCR) is not the most popular stock in this group but hedge fund interest is still above average, and rising. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on, which are not in Xencor’s case, owning just 2.20% of its shares. In this regard CKEC might be a better candidate to consider a long position in.