Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Horizon Pharma Public Limited Company (NASDAQ:HZNP) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Horizon Pharma Public Limited Company (NASDAQ:HZNP) an excellent investment today? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets were trimmed by 2 recently. Our calculations also showed that HZNP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). HZNP was in 32 hedge funds' portfolios at the end of September. There were 34 hedge funds in our database with HZNP holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a look at the key hedge fund action encompassing Horizon Pharma Public Limited Company (NASDAQ:HZNP).
How are hedge funds trading Horizon Pharma Public Limited Company (NASDAQ:HZNP)?
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HZNP over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Horizon Pharma Public Limited Company (NASDAQ:HZNP) was held by Renaissance Technologies, which reported holding $254.6 million worth of stock at the end of September. It was followed by Paulson & Co with a $222.5 million position. Other investors bullish on the company included Deerfield Management, D E Shaw, and Scopia Capital. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Horizon Pharma Public Limited Company (NASDAQ:HZNP), around 7.17% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, designating 6.73 percent of its 13F equity portfolio to HZNP.
Since Horizon Pharma Public Limited Company (NASDAQ:HZNP) has faced declining sentiment from hedge fund managers, it's safe to say that there was a specific group of money managers who sold off their positions entirely last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest position of the 750 funds monitored by Insider Monkey, valued at about $9.5 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also dropped its stock, about $2.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Horizon Pharma Public Limited Company (NASDAQ:HZNP). We will take a look at Avalara, Inc. (NYSE:AVLR), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), bluebird bio Inc (NASDAQ:BLUE), and ONE Gas Inc (NYSE:OGS). This group of stocks' market valuations are closest to HZNP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVLR,44,1102762,4 TKC,5,5614,-2 BLUE,16,146471,-6 OGS,17,95793,3 Average,20.5,337660,-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 $338 million. That figure was $1380 million in HZNP's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Horizon Pharma Public Limited Company (NASDAQ:HZNP) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on HZNP as the stock returned 85.7% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.