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How Did Sarepta Therapeutics Inc (SRPT) Compare Against Top Hedge Fund Stocks in 2019?

Debasis Saha

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Sarepta Therapeutics Inc (NASDAQ:SRPT).

Sarepta Therapeutics Inc (NASDAQ:SRPT) was in 33 hedge funds' portfolios at the end of the third quarter of 2019. SRPT shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. There were 48 hedge funds in our database with SRPT positions at the end of the previous quarter. Our calculations also showed that SRPT 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).

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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_340081" align="alignnone" width="600"] Phill Gross of Adage Capital Management[/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. With all of this in mind let's analyze the fresh hedge fund action surrounding Sarepta Therapeutics Inc (NASDAQ:SRPT).

How have hedgies been trading Sarepta Therapeutics Inc (NASDAQ:SRPT)?

Heading into the fourth quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. On the other hand, there were a total of 43 hedge funds with a bullish position in SRPT a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SRPT A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the largest position in Sarepta Therapeutics Inc (NASDAQ:SRPT). Adage Capital Management has a $129.9 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is venBio Select Advisor, led by Behzad Aghazadeh, holding a $126.4 million position; 5.3% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism include Eric Bannasch's Cadian Capital, Samuel Isaly's OrbiMed Advisors and Stephen DuBois's Camber Capital Management. In terms of the portfolio weights assigned to each position venBio Select Advisor allocated the biggest weight to Sarepta Therapeutics Inc (NASDAQ:SRPT), around 5.27% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 5.09 percent of its 13F equity portfolio to SRPT.

Because Sarepta Therapeutics Inc (NASDAQ:SRPT) has witnessed declining sentiment from hedge fund managers, it's safe to say that there exists a select few fund managers that slashed their full holdings heading into Q4. Interestingly, Christopher James's Partner Fund Management said goodbye to the largest position of the 750 funds followed by Insider Monkey, worth close to $83.1 million in stock. Farallon Capital, also said goodbye to its stock, about $76 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 15 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Sarepta Therapeutics Inc (NASDAQ:SRPT) but similarly valued. We will take a look at World Wrestling Entertainment, Inc. (NYSE:WWE), The Howard Hughes Corporation (NYSE:HHC), IAA, Inc. (NYSE:IAA), and KT Corporation (NYSE:KT). This group of stocks' market caps resemble SRPT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WWE,34,1203910,-5 HHC,25,527177,-1 IAA,31,758086,-11 KT,18,267914,-1 Average,27,689272,-4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $689 million. That figure was $801 million in SRPT's case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 18 bullish hedge fund positions. Sarepta Therapeutics Inc (NASDAQ:SRPT) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately SRPT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SRPT were disappointed as the stock returned 24.2% in 2019 (through December 23rd) 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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