Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Orchard Therapeutics plc (NASDAQ:ORTX)? The smart money sentiment can provide an answer to this question.
Is ORTX a good stock to buy now? Orchard Therapeutics plc (NASDAQ:ORTX) investors should be aware of a decrease in hedge fund sentiment in recent months. Orchard Therapeutics plc (NASDAQ:ORTX) was in 14 hedge funds' portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that ORTX isn't among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Paul Marshall Marshall Wace
Paul Marshall of Marshall Wace
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. 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 website. Now we're going to review the latest hedge fund action regarding Orchard Therapeutics plc (NASDAQ:ORTX).
Do Hedge Funds Think ORTX Is A Good Stock To Buy Now?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ORTX over the last 21 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Orchard Therapeutics plc (NASDAQ:ORTX) was held by RA Capital Management, which reported holding $50.6 million worth of stock at the end of September. It was followed by Deerfield Management with a $28.6 million position. Other investors bullish on the company included Adage Capital Management, Casdin Capital, and Vivo Capital. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Orchard Therapeutics plc (NASDAQ:ORTX), around 0.93% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 0.7 percent of its 13F equity portfolio to ORTX.
Judging by the fact that Orchard Therapeutics plc (NASDAQ:ORTX) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few fund managers that slashed their positions entirely last quarter. Interestingly, Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest stake of all the hedgies monitored by Insider Monkey, comprising close to $0.4 million in stock. D. E. Shaw's fund, D E Shaw, also cut its stock, about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Orchard Therapeutics plc (NASDAQ:ORTX). These stocks are Viomi Technology Co., Ltd (NASDAQ:VIOT), KNOT Offshore Partners LP (NYSE:KNOP), D8 Holdings Corp. (NYSE:DEH), Kala Pharmaceuticals, Inc. (NASDAQ:KALA), Univest Financial Corporation (NASDAQ:UVSP), Progenity, Inc. (NASDAQ:PROG), and Triple-S Management Corp.(NYSE:GTS). This group of stocks' market values resemble ORTX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIOT,5,21142,-1 KNOP,3,20830,-2 DEH,20,121167,20 KALA,18,142580,-1 UVSP,11,49515,-1 PROG,7,6786,-3 GTS,11,87709,1 Average,10.7,64247,1.9 [/table]
As you can see these stocks had an average of 10.7 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $109 million in ORTX's case. D8 Holdings Corp. (NYSE:DEH) is the most popular stock in this table. On the other hand KNOT Offshore Partners LP (NYSE:KNOP) is the least popular one with only 3 bullish hedge fund positions. Orchard Therapeutics plc (NASDAQ:ORTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ORTX is 50.4. 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately ORTX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ORTX were disappointed as the stock returned 9.7% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
