Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Collegium Pharmaceutical Inc (NASDAQ:COLL).
Is Collegium Pharmaceutical Inc (NASDAQ:COLL) a good investment right now? The best stock pickers were taking money off the table in Q3. The number of bullish hedge fund positions were trimmed by 3 recently. Our calculations also showed that COLL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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_364887" align="alignnone" width="806"] Kris Jenner of Rock Springs Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to check out the key hedge fund action regarding Collegium Pharmaceutical Inc (NASDAQ:COLL).
How are hedge funds trading Collegium Pharmaceutical Inc (NASDAQ:COLL)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in COLL a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Collegium Pharmaceutical Inc (NASDAQ:COLL) was held by Frazier Healthcare Partners, which reported holding $21.7 million worth of stock at the end of September. It was followed by Rock Springs Capital Management with a $18.1 million position. Other investors bullish on the company included Sectoral Asset Management, Renaissance Technologies, and Eversept Partners. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Collegium Pharmaceutical Inc (NASDAQ:COLL), around 6.77% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, earmarking 1.79 percent of its 13F equity portfolio to COLL.
Since Collegium Pharmaceutical Inc (NASDAQ:COLL) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedge funds who were dropping their entire stakes heading into Q4. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $0.4 million in stock. Cliff Asness's fund, AQR Capital Management, also dumped its stock, about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Collegium Pharmaceutical Inc (NASDAQ:COLL) but similarly valued. We will take a look at Genco Shipping & Trading Limited (NYSE:GNK), Digi International Inc. (NASDAQ:DGII), Inseego Corp. (NASDAQ:INSG), and Karuna Therapeutics, Inc. (NASDAQ:KRTX). This group of stocks' market valuations resemble COLL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNK,11,210512,-1 DGII,12,49465,-1 INSG,8,16483,0 KRTX,9,22332,0 Average,10,74698,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $63 million in COLL's case. Digi International Inc. (NASDAQ:DGII) is the most popular stock in this table. On the other hand Inseego Corp. (NASDAQ:INSG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Collegium Pharmaceutical Inc (NASDAQ:COLL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on COLL as the stock returned 89.3% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.