Hedge Funds Are Dumping Eidos Therapeutics, Inc. (EIDX)
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Eidos Therapeutics, Inc. (NASDAQ:EIDX) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Eidos Therapeutics, Inc. (NASDAQ:EIDX) was in 12 hedge funds' portfolios at the end of March. EIDX has experienced a decrease in hedge fund sentiment of late. There were 20 hedge funds in our database with EIDX positions at the end of the previous quarter. Our calculations also showed that EIDX 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_261250" align="aligncenter" width="392"]
Peter Kolchinsky of RA Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. 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 we're going to take a gander at the latest hedge fund action regarding Eidos Therapeutics, Inc. (NASDAQ:EIDX).
Hedge fund activity in Eidos Therapeutics, Inc. (NASDAQ:EIDX)
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EIDX over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, RA Capital Management was the largest shareholder of Eidos Therapeutics, Inc. (NASDAQ:EIDX), with a stake worth $105.9 million reported as of the end of September. Trailing RA Capital Management was Cormorant Asset Management, which amassed a stake valued at $53.9 million. Redmile Group, Perceptive Advisors, and Opaleye 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 Opaleye Management allocated the biggest weight to Eidos Therapeutics, Inc. (NASDAQ:EIDX), around 4.1% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, dishing out 3.35 percent of its 13F equity portfolio to EIDX.
Seeing as Eidos Therapeutics, Inc. (NASDAQ:EIDX) has experienced bearish sentiment from hedge fund managers, we can see that there lies a certain "tier" of hedgies that slashed their positions entirely last quarter. At the top of the heap, Steve Cohen's Point72 Asset Management dumped the largest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $10.4 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund sold off about $9.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 8 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Eidos Therapeutics, Inc. (NASDAQ:EIDX) but similarly valued. We will take a look at AMTD International Inc. (NYSE:HKIB), CommVault Systems, Inc. (NASDAQ:CVLT), Wintrust Financial Corporation (NASDAQ:WTFC), and Amkor Technology, Inc. (NASDAQ:AMKR). All of these stocks' market caps match EIDX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HKIB,1,15174,0 CVLT,18,463730,-15 WTFC,27,152618,6 AMKR,28,86455,-1 Average,18.5,179494,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $272 million in EIDX's case. Amkor Technology, Inc. (NASDAQ:AMKR) is the most popular stock in this table. On the other hand AMTD International Inc. (NYSE:HKIB) is the least popular one with only 1 bullish hedge fund positions. Eidos Therapeutics, Inc. (NASDAQ:EIDX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately EIDX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EIDX investors were disappointed as the stock returned -2.7% during 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.
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