Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Ra Pharmaceuticals, Inc. (NASDAQ:RARX).
Is Ra Pharmaceuticals, Inc. (NASDAQ:RARX) a safe investment today? The smart money is getting more bullish. The number of bullish hedge fund bets inched up by 4 in recent months. Our calculations also showed that rarx isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We're going to view the key hedge fund action regarding Ra Pharmaceuticals, Inc. (NASDAQ:RARX).
What does the smart money think about Ra Pharmaceuticals, Inc. (NASDAQ:RARX)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RARX over the last 13 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ra Pharmaceuticals, Inc. (NASDAQ:RARX) was held by RA Capital Management, which reported holding $69.7 million worth of stock at the end of September. It was followed by Consonance Capital Management with a $26.3 million position. Other investors bullish on the company included Rock Springs Capital Management, Deerfield Management, and Sectoral Asset Management.
As industrywide interest jumped, key hedge funds have jumped into Ra Pharmaceuticals, Inc. (NASDAQ:RARX) headfirst. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, created the biggest position in Ra Pharmaceuticals, Inc. (NASDAQ:RARX). Sectoral Asset Management had $6.3 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $1.4 million investment in the stock during the quarter. The following funds were also among the new RARX investors: Peter Algert and Kevin Coldiron's Algert Coldiron Investors and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now review hedge fund activity in other stocks similar to Ra Pharmaceuticals, Inc. (NASDAQ:RARX). These stocks are Aduro BioTech Inc (NASDAQ:ADRO), International Seaways, Inc. (NYSE:INSW), Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), and EZCORP Inc (NASDAQ:EZPW). This group of stocks' market caps are similar to RARX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADRO,7,21488,-1 INSW,8,235390,-2 DHIL,7,45672,-3 EZPW,19,166217,-2 Average,10.25,117192,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $142 million in RARX's case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand Aduro BioTech Inc (NASDAQ:ADRO) is the least popular one with only 7 bullish hedge fund positions. Ra Pharmaceuticals, Inc. (NASDAQ:RARX) 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. In this regard EZPW might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.