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 first 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 4.5 years and analyze what the smart money thinks of Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) based on that data.
Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) has seen a decrease in hedge fund interest of late. ARWR was in 22 hedge funds' portfolios at the end of March. There were 26 hedge funds in our database with ARWR positions at the end of the previous quarter. Our calculations also showed that ARWR isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 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.
[caption id="attachment_341400" align="aligncenter" width="400"] Samuel Isaly of OrbiMed Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the key hedge fund action regarding Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR).
How are hedge funds trading Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR)?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARWR over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Farallon Capital was the largest shareholder of Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), with a stake worth $28.8 million reported as of the end of September. Trailing Farallon Capital was Vivo Capital, which amassed a stake valued at $22.1 million. D E Shaw, Renaissance Technologies, and Two Sigma Advisors 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 4.89% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, designating 2 percent of its 13F equity portfolio to ARWR.
Seeing as Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there exists a select few hedge funds who were dropping their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, totaling close to $29.9 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund cut about $5.3 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR) but similarly valued. These stocks are Mantech International Corp (NASDAQ:MANT), Crane Co. (NYSE:CR), White Mountains Insurance Group Ltd (NYSE:WTM), and Starwood Property Trust, Inc. (NYSE:STWD). This group of stocks' market caps match ARWR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MANT,17,32174,-6 CR,26,197568,3 WTM,16,133496,0 STWD,23,96766,2 Average,20.5,115001,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $161 million in ARWR's case. Crane Co. (NYSE:CR) is the most popular stock in this table. On the other hand White Mountains Insurance Group Ltd (NYSE:WTM) is the least popular one with only 16 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. 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 13.9% in 2020 through June 10th but beat the market by 14.2 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 21.7% during the same time period 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.
Disclosure: None. This article was originally published at Insider Monkey.