We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded GW Pharmaceuticals plc (NASDAQ:GWPH) based on those filings.
GW Pharmaceuticals plc (NASDAQ:GWPH) was in 24 hedge funds' portfolios at the end of the fourth quarter of 2019. GWPH has experienced a decrease in activity from the world's largest hedge funds of late. There were 32 hedge funds in our database with GWPH positions at the end of the previous quarter. Our calculations also showed that GWPH isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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' 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Felix Baker of Baker Bros.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's view the latest hedge fund action regarding GW Pharmaceuticals plc (NASDAQ:GWPH).
How have hedgies been trading GW Pharmaceuticals plc (NASDAQ:GWPH)?
At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the third quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in GWPH a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in GW Pharmaceuticals plc (NASDAQ:GWPH) was held by Point72 Asset Management, which reported holding $64.2 million worth of stock at the end of September. It was followed by Consonance Capital Management with a $63.2 million position. Other investors bullish on the company included Baker Bros. Advisors, Holocene Advisors, and Holocene Advisors. In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to GW Pharmaceuticals plc (NASDAQ:GWPH), around 4.63% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, dishing out 3.86 percent of its 13F equity portfolio to GWPH.
Seeing as GW Pharmaceuticals plc (NASDAQ:GWPH) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers that slashed their full holdings heading into Q4. Intriguingly, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $10.9 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund sold off about $5.8 million worth. These moves are interesting, as total hedge fund interest fell by 8 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to GW Pharmaceuticals plc (NASDAQ:GWPH). These stocks are Qualys Inc (NASDAQ:QLYS), Iridium Communications Inc. (NASDAQ:IRDM), Valmont Industries, Inc. (NYSE:VMI), and Alkermes Plc (NASDAQ:ALKS). This group of stocks' market caps resemble GWPH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QLYS,29,179997,10 IRDM,20,285571,2 VMI,24,315469,-4 ALKS,33,568267,7 Average,26.5,337326,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $337 million. That figure was $366 million in GWPH's case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand Iridium Communications Inc. (NASDAQ:IRDM) is the least popular one with only 20 bullish hedge fund positions. GW Pharmaceuticals plc (NASDAQ:GWPH) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on GWPH as the stock returned -15% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.