Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. The S&P 500 Index ETF (SPY) lost 2.6% in the first two months of the second quarter. Ten out of 11 industry groups in the S&P 500 Index lost value in May. The average return of a randomly picked stock in the index was even worse (-3.6%). This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 20 most popular S&P 500 stocks among hedge funds not only generated positive returns but also outperformed the index by about 3 percentage points through May 30th. In this article, we will take a look at what hedge funds think about Arvinas, Inc. (NASDAQ:ARVN).
Arvinas, Inc. (NASDAQ:ARVN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of March. At the end of this article we will also compare ARVN to other stocks including PDL BioPharma Inc. (NASDAQ:PDLI), Five Prime Therapeutics Inc (NASDAQ:FPRX), and Arrow Financial Corporation (NASDAQ:AROW) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let's view the new hedge fund action surrounding Arvinas, Inc. (NASDAQ:ARVN).
What have hedge funds been doing with Arvinas, Inc. (NASDAQ:ARVN)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in ARVN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, OrbiMed Advisors held the most valuable stake in Arvinas, Inc. (NASDAQ:ARVN), which was worth $39.5 million at the end of the first quarter. On the second spot was RA Capital Management which amassed $31.6 million worth of shares. Moreover, Deerfield Management, Point72 Asset Management, and Hillhouse Capital Management were also bullish on Arvinas, Inc. (NASDAQ:ARVN), allocating a large percentage of their portfolios to this stock.
Because Arvinas, Inc. (NASDAQ:ARVN) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there were a few funds that slashed their entire stakes last quarter. It's worth mentioning that Albert Cha and Frank Kung's Vivo Capital sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling about $2.7 million in stock. David Lohman's fund, Diag Capital, also cut its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Arvinas, Inc. (NASDAQ:ARVN). These stocks are PDL BioPharma Inc. (NASDAQ:PDLI), Five Prime Therapeutics Inc (NASDAQ:FPRX), Arrow Financial Corporation (NASDAQ:AROW), and Krystal Biotech, Inc. (NASDAQ:KRYS). This group of stocks' market values match ARVN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDLI,18,83457,2 FPRX,15,126296,0 AROW,2,11697,-1 KRYS,16,113063,4 Average,12.75,83628,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $104 million in ARVN's case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand Arrow Financial Corporation (NASDAQ:AROW) is the least popular one with only 2 bullish hedge fund positions. Arvinas, Inc. (NASDAQ:ARVN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on ARVN as the stock returned 51.2% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.