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 Clovis Oncology Inc (NASDAQ:CLVS) and determine whether hedge funds had an edge regarding this stock.
Is Clovis Oncology Inc (NASDAQ:CLVS) worth your attention right now? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund bets decreased by 2 lately. Our calculations also showed that CLVS 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). CLVS was in 13 hedge funds' portfolios at the end of March. There were 15 hedge funds in our database with CLVS holdings at the end of the previous 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 PayPal alternatives for international payments to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now let's take a gander at the fresh hedge fund action regarding Clovis Oncology Inc (NASDAQ:CLVS).
What have hedge funds been doing with Clovis Oncology Inc (NASDAQ:CLVS)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CLVS 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, William Leland Edwards's Palo Alto Investors has the number one position in Clovis Oncology Inc (NASDAQ:CLVS), worth close to $29.5 million, accounting for 2.5% of its total 13F portfolio. The second most bullish fund manager is Antara Capital, led by Himanshu Gulati, holding a $13.8 million call position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions comprise Neil Shahrestani's Ikarian Capital, Neil Shahrestani's Ikarian Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to Clovis Oncology Inc (NASDAQ:CLVS), around 2.67% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, designating 2.47 percent of its 13F equity portfolio to CLVS.
Due to the fact that Clovis Oncology Inc (NASDAQ:CLVS) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that elected to cut their full holdings in the first quarter. Interestingly, George Soros's Soros Fund Management cut the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $5.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $2.5 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds in the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Clovis Oncology Inc (NASDAQ:CLVS) but similarly valued. These stocks are Atreca, Inc. (NASDAQ:BCEL), Tanger Factory Outlet Centers Inc. (NYSE:SKT), Hudson Ltd. (NYSE:HUD), and First Financial Corp (NASDAQ:THFF). This group of stocks' market valuations are closest to CLVS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCEL,8,118194,1 SKT,16,25546,2 HUD,14,35222,4 THFF,10,20394,-1 Average,12,49839,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $38 million in CLVS's case. Tanger Factory Outlet Centers Inc. (NYSE:SKT) is the most popular stock in this table. On the other hand Atreca, Inc. (NASDAQ:BCEL) is the least popular one with only 8 bullish hedge fund positions. Clovis Oncology Inc (NASDAQ:CLVS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately CLVS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CLVS were disappointed as the stock returned 14.9% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.