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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) based on that data.
Hedge fund interest in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that IRWD isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as United Natural Foods, Inc. (NASDAQ:UNFI), Myovant Sciences Ltd. (NYSE:MYOV), and Morphic Holding, Inc. (NASDAQ:MORF) to gather more data points.
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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a gander at the latest hedge fund action regarding Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD).
Do Hedge Funds Think IRWD Is A Good Stock To Buy Now?
At second quarter's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in IRWD a year ago. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Sarissa Capital Management, managed by Alex Denner, holds the biggest position in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). Sarissa Capital Management has a $210.9 million position in the stock, comprising 16.8% of its 13F portfolio. The second largest stake is held by Stephen DuBois of Camber Capital Management, with a $96.5 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Renaissance Technologies, Roberto Mignone's Bridger Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position HealthInvest Partners AB allocated the biggest weight to Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), around 18.54% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, setting aside 16.77 percent of its 13F equity portfolio to IRWD.
Judging by the fact that Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers that elected to cut their full holdings heading into Q3. It's worth mentioning that Peter S. Park's Park West Asset Management cut the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $12.4 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund sold off about $2.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) but similarly valued. We will take a look at United Natural Foods, Inc. (NASDAQ:UNFI), Myovant Sciences Ltd. (NYSE:MYOV), Morphic Holding, Inc. (NASDAQ:MORF), Raven Industries, Inc. (NASDAQ:RAVN), Equinox Gold Corp. (NYSE:EQX), Service Properties Trust (NASDAQ:SVC), and Empire State Realty Trust Inc (NYSE:ESRT). This group of stocks' market caps resemble IRWD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNFI,15,83283,-8 MYOV,18,103196,3 MORF,19,419655,-3 RAVN,22,265003,6 EQX,16,66615,1 SVC,13,144696,-5 ESRT,15,189893,4 Average,16.9,181763,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $498 million in IRWD's case. Raven Industries, Inc. (NASDAQ:RAVN) is the most popular stock in this table. On the other hand Service Properties Trust (NASDAQ:SVC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is more popular among hedge funds. Our overall hedge fund sentiment score for IRWD is 81.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24.9% in 2021 through October 15th but still managed to beat the market by 4.5 percentage points. Hedge funds were also right about betting on IRWD as the stock returned 6.1% since the end of June (through 10/15) 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.