Were Hedge Funds Right About FibroGen Inc (FGEN)?

·6 min read

In this article we will check out the progression of hedge fund sentiment towards FibroGen Inc (NASDAQ:FGEN) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

FibroGen Inc (NASDAQ:FGEN) shareholders have witnessed a decrease in hedge fund interest of late. FibroGen Inc (NASDAQ:FGEN) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 25. There were 21 hedge funds in our database with FGEN holdings at the end of December. Our calculations also showed that FGEN isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Jim Tananbaum - Foresite Capital
Jim Tananbaum - Foresite Capital

Jim Tananbaum of Foresite Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind let's go over the fresh hedge fund action surrounding FibroGen Inc (NASDAQ:FGEN).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FGEN over the last 23 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is FGEN A Good Stock To Buy?
Is FGEN A Good Stock To Buy?

The largest stake in FibroGen Inc (NASDAQ:FGEN) was held by Hillhouse Capital Management, which reported holding $137.3 million worth of stock at the end of December. It was followed by Farallon Capital with a $58.4 million position. Other investors bullish on the company included Rock Springs Capital Management, Foresite Capital, and Rhenman & Partners Asset Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to FibroGen Inc (NASDAQ:FGEN), around 9.32% of its 13F portfolio. Hillhouse Capital Management is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to FGEN.

Due to the fact that FibroGen Inc (NASDAQ:FGEN) has faced a decline in interest from the smart money, logic holds that there were a few money managers that slashed their positions entirely last quarter. At the top of the heap, Ting Jia's Octagon Capital Advisors dropped the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $5.4 million in stock, and Jerome Pfund and Michael Sjostrom's Sectoral Asset Management was right behind this move, as the fund said goodbye to about $3.9 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as FibroGen Inc (NASDAQ:FGEN) but similarly valued. We will take a look at Bandwidth Inc. (NASDAQ:BAND), Outfront Media Inc (NYSE:OUT), Wolverine World Wide, Inc. (NYSE:WWW), Trinity Industries, Inc. (NYSE:TRN), Empire State Realty OP, L.P. (NYSE:ESBA), Cohen & Steers, Inc. (NYSE:CNS), and Evoqua Water Technologies Corp. (NYSE:AQUA). This group of stocks' market valuations are closest to FGEN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAND,24,267634,-7 OUT,41,745537,3 WWW,16,121591,2 TRN,28,987877,6 ESBA,1,114,1 CNS,17,84194,2 AQUA,23,328118,-3 Average,21.4,362152,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $362 million. That figure was $247 million in FGEN's case. Outfront Media Inc (NYSE:OUT) is the most popular stock in this table. On the other hand Empire State Realty OP, L.P. (NYSE:ESBA) is the least popular one with only 1 bullish hedge fund positions. FibroGen Inc (NASDAQ:FGEN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FGEN is 44.9. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately FGEN wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FGEN investors were disappointed as the stock returned -61.8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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