Did Hedge Funds Drop The Ball On Natera Inc (NTRA)?

Nina Todic

Fri, May 3, 2019, 6:24 PM

Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Natera Inc (NASDAQ:NTRA) was in 17 hedge funds' portfolios at the end of the fourth quarter of 2018. NTRA shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 21 hedge funds in our database with NTRA holdings at the end of the previous quarter. Our calculations also showed that ntra isn't among the 30 most popular stocks among hedge funds.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

We're going to go over the new hedge fund action regarding Natera Inc (NASDAQ:NTRA).

What have hedge funds been doing with Natera Inc (NASDAQ:NTRA)?

At Q4's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in NTRA a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Natera Inc (NASDAQ:NTRA), which was worth $23.7 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $18.6 million worth of shares. Moreover, Deerfield Management, OrbiMed Advisors, and Rubric Capital Management were also bullish on Natera Inc (NASDAQ:NTRA), allocating a large percentage of their portfolios to this stock.

Because Natera Inc (NASDAQ:NTRA) has witnessed declining sentiment from the smart money, it's safe to say that there were a few hedgies that decided to sell off their full holdings heading into Q3. Interestingly, Jane Mendillo's Harvard Management Co dropped the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $15.3 million in stock, and Richard Driehaus's Driehaus Capital was right behind this move, as the fund dumped about $13.3 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Natera Inc (NASDAQ:NTRA) but similarly valued. We will take a look at Qiwi PLC (NASDAQ:QIWI), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), Standex International Corporation (NYSE:SXI), and Intersect ENT Inc (NASDAQ:XENT). This group of stocks' market values are similar to NTRA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QIWI,8,96327,0 BCSF,3,27479,3 SXI,8,13557,-4 XENT,20,214979,-2 Average,9.75,88086,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $100 million in NTRA's case. Intersect ENT Inc (NASDAQ:XENT) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 3 bullish hedge fund positions. Natera Inc (NASDAQ:NTRA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on NTRA as the stock returned 29.9% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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