The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Eagle Pharmaceuticals Inc (NASDAQ:EGRX) based on those filings.
Eagle Pharmaceuticals Inc (NASDAQ:EGRX) has experienced an increase in support from the world's most elite money managers lately. Our calculations also showed that EGRX isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 percentage points since March 2017 (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_30600" align="aligncenter" width="392"] Bruce Kovner of Caxton Associates LP[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the recent hedge fund action encompassing Eagle Pharmaceuticals Inc (NASDAQ:EGRX).
What have hedge funds been doing with Eagle Pharmaceuticals Inc (NASDAQ:EGRX)?
Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the fourth quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in EGRX 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.
Among these funds, Park West Asset Management held the most valuable stake in Eagle Pharmaceuticals Inc (NASDAQ:EGRX), which was worth $56.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $13.3 million worth of shares. Tang Capital Management, AQR Capital Management, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Park West Asset Management allocated the biggest weight to Eagle Pharmaceuticals Inc (NASDAQ:EGRX), around 3.86% of its 13F portfolio. Tang Capital Management is also relatively very bullish on the stock, designating 1.65 percent of its 13F equity portfolio to EGRX.
As industrywide interest jumped, key money managers have been driving this bullishness. Tang Capital Management, managed by Kevin C. Tang, initiated the biggest position in Eagle Pharmaceuticals Inc (NASDAQ:EGRX). Tang Capital Management had $11.8 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management and Bruce Kovner's Caxton Associates LP.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Eagle Pharmaceuticals Inc (NASDAQ:EGRX) but similarly valued. We will take a look at The Andersons, Inc. (NASDAQ:ANDE), Retrophin Inc (NASDAQ:RTRX), Aerie Pharmaceuticals Inc (NASDAQ:AERI), and AAR Corp. (NYSE:AIR). This group of stocks' market valuations are similar to EGRX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANDE,6,10449,-7 RTRX,22,257866,0 AERI,24,158071,3 AIR,18,42644,-5 Average,17.5,117258,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $109 million in EGRX's case. Aerie Pharmaceuticals Inc (NASDAQ:AERI) is the most popular stock in this table. On the other hand The Andersons, Inc. (NASDAQ:ANDE) is the least popular one with only 6 bullish hedge fund positions. Eagle Pharmaceuticals Inc (NASDAQ:EGRX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately EGRX wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EGRX investors were disappointed as the stock returned 4.5% during 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.
Disclosure: None. This article was originally published at Insider Monkey.