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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) and determine whether the smart money was really smart about this stock.
Is Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) a first-rate investment now? The smart money was taking a pessimistic view. The number of bullish hedge fund bets went down by 1 lately. Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistics is 26. Our calculations also showed that ARWR isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Siegel of Two Sigma 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 precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to take a gander at the latest hedge fund action surrounding Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR).
Hedge fund activity in Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR)
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in ARWR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Point72 Asset Management held the most valuable stake in Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), which was worth $51.4 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $34.6 million worth of shares. Two Sigma Advisors, Vivo Capital, and Aquilo Capital Management 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 Aquilo Capital Management allocated the biggest weight to Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), around 4.91% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, dishing out 2.12 percent of its 13F equity portfolio to ARWR.
Judging by the fact that Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies that decided to sell off their full holdings by the end of the second quarter. Intriguingly, Renaissance Technologies cut the biggest investment of all the hedgies monitored by Insider Monkey, worth an estimated $19.2 million in stock. Bruce Kovner's fund, Caxton Associates LP, also said goodbye to its stock, about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR). These stocks are The Middleby Corporation (NASDAQ:MIDD), NewMarket Corporation (NYSE:NEU), Silicon Laboratories Inc. (NASDAQ:SLAB), Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Mercury Systems Inc (NASDAQ:MRCY), Schneider National, Inc. (NYSE:SNDR), and FirstService Corporation (NASDAQ:FSV). All of these stocks' market caps are closest to ARWR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MIDD,26,165900,0 NEU,21,139066,1 SLAB,28,97081,8 SHI,3,12561,0 MRCY,26,67228,14 SNDR,17,122089,-5 FSV,11,161212,-1 Average,18.9,109305,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $236 million in ARWR's case. Silicon Laboratories Inc.(NASDAQ:SLAB) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 3 bullish hedge fund positions. Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARWR is 64.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ARWR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ARWR were disappointed as the stock returned -0.3% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.