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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) based on that data.
Is ARQT a good stock to buy now? Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) was in 9 hedge funds' portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that ARQT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Samuel Isaly, Founder of Orbimed Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we're going to review the new hedge fund action encompassing Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT).
Do Hedge Funds Think ARQT Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in ARQT over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Frazier Healthcare Partners was the largest shareholder of Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), with a stake worth $308.9 million reported as of the end of September. Trailing Frazier Healthcare Partners was OrbiMed Advisors, which amassed a stake valued at $136.9 million. RA Capital Management, Vivo Capital, and Polar Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), around 27.73% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, earmarking 1.89 percent of its 13F equity portfolio to ARQT.
Judging by the fact that Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) has faced falling interest from the smart money, it's easy to see that there were a few fund managers that elected to cut their entire stakes last quarter. At the top of the heap, Renaissance Technologies sold off the largest investment of all the hedgies monitored by Insider Monkey, worth close to $0.8 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dropped about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT). These stocks are U.S. Physical Therapy, Inc. (NYSE:USPH), Tennant Company (NYSE:TNC), Stoke Therapeutics, Inc. (NASDAQ:STOK), Arcus Biosciences, Inc. (NYSE:RCUS), Athenex, Inc. (NASDAQ:ATNX), Applied Molecular Transport Inc. (NASDAQ:AMTI), and Amerisafe, Inc. (NASDAQ:AMSF). This group of stocks' market values resemble ARQT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position USPH,10,38330,1 TNC,15,77755,5 STOK,9,170786,-2 RCUS,26,221219,-2 ATNX,25,359589,7 AMTI,2,37844,-6 AMSF,16,39024,4 Average,14.7,134935,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $527 million in ARQT's case. Arcus Biosciences, Inc. (NYSE:RCUS) is the most popular stock in this table. On the other hand Applied Molecular Transport Inc. (NASDAQ:AMTI) is the least popular one with only 2 bullish hedge fund positions. Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ARQT is 45.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately ARQT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARQT investors were disappointed as the stock returned -9.9% since the end of September (through 12/8) and underperformed 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.