Was The Smart Money Right About Piling Into Natera Inc (NTRA)?

Debasis Saha
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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31st, so let’s proceed with the discussion of the hedge fund sentiment on Natera Inc (NASDAQ:NTRA).

Natera Inc (NASDAQ:NTRA) investors should be aware of an increase in enthusiasm from smart money of late. Natera Inc (NASDAQ:NTRA) was in 46 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NTRA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Driehaus of Driehaus Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's analyze the recent hedge fund action encompassing Natera Inc (NASDAQ:NTRA).

Do Hedge Funds Think NTRA Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in NTRA over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is NTRA A Good Stock To Buy?
Is NTRA A Good Stock To Buy?

Of the funds tracked by Insider Monkey, OrbiMed Advisors, holds the largest position in Natera Inc (NASDAQ:NTRA). OrbiMed Advisors has a $210.1 million position in the stock, comprising 1.8% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $143.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Paul Marshall and Ian Wace's Marshall Wace LLP, Richard Driehaus's Driehaus Capital and Roberto Mignone's Bridger Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Natera Inc (NASDAQ:NTRA), around 14.73% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, dishing out 5.34 percent of its 13F equity portfolio to NTRA.

Consequently, key money managers have jumped into Natera Inc (NASDAQ:NTRA) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in Natera Inc (NASDAQ:NTRA). Marshall Wace LLP had $90.7 million invested in the company at the end of the quarter. Kevin Molloy's Iron Triangle Partners also initiated a $14.9 million position during the quarter. The other funds with brand new NTRA positions are Steven Boyd's Armistice Capital, Jerome Pfund and Michael Sjostrom's Sectoral Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's check out hedge fund activity in other stocks similar to Natera Inc (NASDAQ:NTRA). These stocks are Iron Mountain Incorporated (NYSE:IRM), Service Corporation International (NYSE:SCI), Smartsheet Inc. (NYSE:SMAR), Ozon Holdings PLC (NASDAQ:OZON), RenaissanceRe Holdings Ltd. (NYSE:RNR), Lamar Advertising Company (NASDAQ:LAMR), and Inphi Corporation (NYSE:IPHI). All of these stocks' market caps match NTRA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRM,18,64778,-7 SCI,28,814855,-2 SMAR,45,1723390,0 OZON,21,150922,21 RNR,39,669309,2 LAMR,36,528338,-1 IPHI,34,1272318,0 Average,31.6,746273,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $746 million. That figure was $1175 million in NTRA's case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Natera Inc (NASDAQ:NTRA) is more popular among hedge funds. Our overall hedge fund sentiment score for NTRA is 88. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately NTRA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on NTRA were disappointed as the stock returned 10.6% since the end of the fourth quarter (through 4/30) 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 since 2019.

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

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