How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) and determine whether hedge funds had an edge regarding this stock.
Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that BHVN 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.
In the 21st century investor’s toolkit there are several metrics shareholders have at their disposal to value stocks. A pair of the most innovative metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best fund managers can outperform their index-focused peers by a superb margin (see the details here).
[caption id="attachment_140292" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we're going to take a look at the recent hedge fund action surrounding Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).
How are hedge funds trading Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)?
At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BHVN over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the biggest position in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). Marshall Wace LLP has a $87.2 million position in the stock, comprising 0.9% of its 13F portfolio. The second most bullish fund manager is Kingdon Capital, led by Mark Kingdon, holding a $49.8 million position; the fund has 9.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Steven Boyd's Armistice Capital, and Brian Ashford-Russell and Tim Woolley's Polar Capital. In terms of the portfolio weights assigned to each position Knoll Capital Management allocated the biggest weight to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), around 27.41% of its 13F portfolio. Kingdon Capital is also relatively very bullish on the stock, earmarking 9.11 percent of its 13F equity portfolio to BHVN.
Judging by the fact that Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few funds who sold off their entire stakes in the first quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management cut the largest position of all the hedgies tracked by Insider Monkey, valued at close to $24.8 million in stock. Kevin Kotler's fund, Broadfin Capital, also cut its stock, about $22.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds in the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) but similarly valued. These stocks are Cronos Group Inc. (NASDAQ:CRON), Ryman Hospitality Properties, Inc. (NYSE:RHP), ESCO Technologies Inc. (NYSE:ESE), and South State Corporation (NASDAQ:SSB). This group of stocks' market caps match BHVN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRON,10,73477,0 RHP,26,266783,-4 ESE,8,59966,-1 SSB,12,77340,-3 Average,14,119392,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $391 million in BHVN's case. Ryman Hospitality Properties, Inc. (NYSE:RHP) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BHVN as the stock returned 114.8% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.