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 bluebird bio Inc (NASDAQ:BLUE) and determine whether hedge funds skillfully traded this stock.
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. BLUE has seen an increase in enthusiasm from smart money of late. There were 27 hedge funds in our database with BLUE holdings at the end of March. 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). 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.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the latest hedge fund action encompassing bluebird bio Inc (NASDAQ:BLUE).
How have hedgies been trading bluebird bio Inc (NASDAQ:BLUE)?
At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 37% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in BLUE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Camber Capital Management held the most valuable stake in bluebird bio Inc (NASDAQ:BLUE), which was worth $77.8 million at the end of the third quarter. On the second spot was Casdin Capital which amassed $67.4 million worth of shares. Armistice Capital, Platinum Asset Management, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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, earmarking 3.99 percent of its 13F equity portfolio to BLUE.
Now, some big names have been driving this bullishness. Camber Capital Management, managed by Stephen DuBois, established 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 following funds were also among the new BLUE investors: Richard Mashaal’s Rima Senvest Management, Nathaniel August’s Mangrove Partners, and Noam Gottesman’s GLG Partners.
Let’s now review hedge fund activity in other stocks similar to bluebird bio Inc (NASDAQ:BLUE). 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 valuations match BLUE’s market valuation.
[table] 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 [/table]
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 33% in 2020 through the end of August and still beat the market by 23.2 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 -2.9% since the end of 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.