Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves. In this article, we look at what those funds think of Regeneron Pharmaceuticals Inc (NASDAQ:REGN) based on that data.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) has seen a decrease in support from the world's most elite money managers lately. REGN was in 33 hedge funds' portfolios at the end of the third quarter of 2019. There were 37 hedge funds in our database with REGN positions at the end of the previous quarter. Our calculations also showed that REGN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_25717" align="alignnone" width="548"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a glance at the key hedge fund action surrounding Regeneron Pharmaceuticals Inc (NASDAQ:REGN).
How have hedgies been trading Regeneron Pharmaceuticals Inc (NASDAQ:REGN)?
At Q3's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in REGN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Steve Cohen's Point72 Asset Management has the most valuable position in Regeneron Pharmaceuticals Inc (NASDAQ:REGN), worth close to $122.3 million, corresponding to 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $110.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Israel Englander's Millennium Management, Cliff Asness's AQR Capital Management and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Pura Vida Investments allocated the biggest weight to Regeneron Pharmaceuticals Inc (NASDAQ:REGN), around 3.89% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, dishing out 2.8 percent of its 13F equity portfolio to REGN.
Since Regeneron Pharmaceuticals Inc (NASDAQ:REGN) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedge funds that elected to cut their full holdings in the third quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest investment of all the hedgies followed by Insider Monkey, totaling about $126.3 million in stock. Ori Hershkovitz's fund, Nexthera Capital, also sold off its stock, about $1.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Regeneron Pharmaceuticals Inc (NASDAQ:REGN) but similarly valued. We will take a look at ONEOK, Inc. (NYSE:OKE), NXP Semiconductors NV (NASDAQ:NXPI), Atlassian Corporation Plc (NASDAQ:TEAM), and AvalonBay Communities Inc (NYSE:AVB). All of these stocks' market caps are closest to REGN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OKE,23,308569,2 NXPI,59,3380862,-1 TEAM,46,2413494,10 AVB,19,537344,-2 Average,36.75,1660067,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $1660 million. That figure was $870 million in REGN's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 19 bullish hedge fund positions. Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately REGN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); REGN investors were disappointed as the stock returned 0.2% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.