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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) and determine whether hedge funds skillfully traded this stock.
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was in 41 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ARNA has seen an increase in activity from the world's largest hedge funds lately. There were 36 hedge funds in our database with ARNA holdings at the end of March. Our calculations also showed that ARNA isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
Today there are tons of signals stock traders use to grade stocks. A pair of the most innovative signals are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite fund managers can outclass the broader indices by a healthy margin (see the details here).
Joseph Edelman of Perceptive Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to take a gander at the new hedge fund action regarding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
How are hedge funds trading Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
At Q2's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in ARNA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was held by Alkeon Capital Management, which reported holding $109.5 million worth of stock at the end of September. It was followed by Great Point Partners with a $82 million position. Other investors bullish on the company included Perceptive Advisors, Citadel Investment Group, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 6.55% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 6.14 percent of its 13F equity portfolio to ARNA.
Now, some big names were leading the bulls' herd. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, created the most outsized position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Avoro Capital Advisors (venBio Select Advisor) had $59.8 million invested in the company at the end of the quarter. Farallon Capital also initiated a $56.7 million position during the quarter. The following funds were also among the new ARNA investors: Jerome Pfund and Michael Sjostrom's Sectoral Asset Management, Arsani William's Logos Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. We will take a look at Medallia, Inc. (NYSE:MDLA), Black Hills Corporation (NYSE:BKH), Braskem SA (NYSE:BAK), Physicians Realty Trust (NYSE:DOC), Hamilton Lane Incorporated (NASDAQ:HLNE), Agree Realty Corporation (NYSE:ADC), and Regal Beloit Corporation (NYSE:RBC). This group of stocks' market values resemble ARNA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDLA,18,257841,-2 BKH,22,182307,4 BAK,7,36296,1 DOC,15,106429,-1 HLNE,19,118594,10 ADC,16,300188,-5 RBC,22,258249,3 Average,17,179986,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $815 million in ARNA's case. Black Hills Corporation (NYSE:BKH) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is more popular among hedge funds. Our overall hedge fund sentiment score for ARNA is 90. 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 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately ARNA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ARNA were disappointed as the stock returned 10.9% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.