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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) investors should pay attention to an increase in hedge fund interest of late. ARNA was in 36 hedge funds' portfolios at the end of March. There were 33 hedge funds in our database with ARNA positions at the end of the previous quarter. Our calculations also showed that ARNA 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.
To most investors, hedge funds are seen as underperforming, old investment tools of yesteryear. While there are greater than 8000 funds in operation at present, Our experts hone in on the upper echelon of this group, around 850 funds. It is estimated that this group of investors manage most of the smart money's total capital, and by paying attention to their highest performing stock picks, Insider Monkey has figured out several investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
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Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the key hedge fund action surrounding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
What does smart money think about Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ARNA over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was held by Citadel Investment Group, which reported holding $52.2 million worth of stock at the end of September. It was followed by Alyeska Investment Group with a $34.2 million position. Other investors bullish on the company included Alkeon Capital Management, Partner Fund Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 8.24% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, earmarking 3.15 percent of its 13F equity portfolio to ARNA.
As industrywide interest jumped, key money managers were breaking ground themselves. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, assembled the most outsized position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Alkeon Capital Management had $31.5 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $30.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Arthur B Cohen and Joseph Healey's Healthcor Management LP, Jeffrey Jay and David Kroin's Great Point Partners, and Henrik Rhenman's Rhenman & Partners Asset Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. These stocks are Uniqure NV (NASDAQ:QURE), BEST Inc. (NYSE:BEST), New Residential Investment Corp (NYSE:NRZ), and Vishay Intertechnology (NYSE:VSH). All of these stocks' market caps are similar to ARNA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QURE,44,642438,0 BEST,6,10173,-4 NRZ,23,27836,0 VSH,23,266555,3 Average,24,236751,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $363 million in ARNA's case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 6 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ARNA as the stock returned 49.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.