Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Esperion Therapeutics, Inc. (NASDAQ:ESPR).
Is Esperion Therapeutics, Inc. (NASDAQ:ESPR) the right pick for your portfolio? The best stock pickers are taking an optimistic view. The number of long hedge fund bets went up by 2 recently. Our calculations also showed that ESPR isn't among the 30 most popular stocks among hedge funds (see the video below). ESPR was in 16 hedge funds' portfolios at the end of the second quarter of 2019. There were 14 hedge funds in our database with ESPR positions at the end of the previous quarter. Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the key hedge fund action encompassing Esperion Therapeutics, Inc. (NASDAQ:ESPR).
How are hedge funds trading Esperion Therapeutics, Inc. (NASDAQ:ESPR)?
At Q2's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ESPR over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pentwater Capital Management was the largest shareholder of Esperion Therapeutics, Inc. (NASDAQ:ESPR), with a stake worth $113.3 million reported as of the end of March. Trailing Pentwater Capital Management was Partner Fund Management, which amassed a stake valued at $72.3 million. GLG Partners, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Esperion Therapeutics, Inc. (NASDAQ:ESPR). Balyasny Asset Management had $7.5 million invested in the company at the end of the quarter. Matthew Halbower's Pentwater Capital Management also made a $7.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller's PDT Partners, Joel Greenblatt's Gotham Asset Management, and D. E. Shaw's D E Shaw.
Let's now take a look at hedge fund activity in other stocks similar to Esperion Therapeutics, Inc. (NASDAQ:ESPR). We will take a look at Denny's Corporation (NASDAQ:DENN), Victory Capital Holdings, Inc. (NASDAQ:VCTR), City Holding Company (NASDAQ:CHCO), and Vicor Corporation (NASDAQ:VICR). This group of stocks' market values are similar to ESPR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DENN,17,196803,-2 VCTR,12,68237,-1 CHCO,11,19024,3 VICR,13,20339,3 Average,13.25,76101,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $254 million in ESPR's case. Denny's Corporation (NASDAQ:DENN) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 11 bullish hedge fund positions. Esperion Therapeutics, Inc. (NASDAQ:ESPR) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ESPR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ESPR were disappointed as the stock returned -21.2% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.