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 Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) and determine whether hedge funds skillfully traded this stock.
Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) was in 26 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. Our calculations also showed that EIGR 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.
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 56 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.
Nathaniel August of Mangrove Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 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. 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 website to get excerpts of these letters in your inbox. With all of this in mind we're going to view the new hedge fund action surrounding Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR).
What does smart money think about Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR)?
At the end of June, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EIGR over the last 20 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, 683 Capital Partners, managed by Ari Zweiman, holds the most valuable position in Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR). 683 Capital Partners has a $20.7 million position in the stock, comprising 1.7% of its 13F portfolio. On 683 Capital Partners's heels is Vivo Capital, managed by Albert Cha and Frank Kung, which holds a $17.2 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Nathaniel August's Mangrove Partners, Ken Griffin's Citadel Investment Group and Bihua Chen's Cormorant Asset Management. In terms of the portfolio weights assigned to each position Soleus Capital allocated the biggest weight to Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), around 3.39% of its 13F portfolio. P.A.W. CAPITAL PARTNERS is also relatively very bullish on the stock, earmarking 3.26 percent of its 13F equity portfolio to EIGR.
Since Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers who were dropping their entire stakes by the end of the second quarter. Interestingly, Renaissance Technologies said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $1.8 million in stock. Mark Lampert's fund, Biotechnology Value Fund / BVF Inc, also cut its stock, about $0.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the second quarter.
Let's go over hedge fund activity in other stocks similar to Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR). These stocks are CymaBay Therapeutics Inc (NASDAQ:CBAY), Alpha Pro Tech, Ltd. (NYSE:APT), Lydall, Inc. (NYSE:LDL), Protective Insurance Corporation (NASDAQ:PTVCA), Cheetah Mobile Inc (NYSE:CMCM), DermTech, Inc. (NASDAQ:DMTK), and Liquidia Technologies, Inc. (NASDAQ:LQDA). This group of stocks' market valuations match EIGR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBAY,24,100456,10 APT,8,21459,3 LDL,12,39388,-2 PTVCA,2,2466,0 CMCM,5,5040,1 DMTK,7,36073,2 LQDA,16,66073,10 Average,10.6,38708,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $103 million in EIGR's case. CymaBay Therapeutics Inc (NASDAQ:CBAY) is the most popular stock in this table. On the other hand Protective Insurance Corporation (NASDAQ:PTVCA) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is more popular among hedge funds. Our overall hedge fund sentiment score for EIGR is 82.9. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately EIGR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EIGR were disappointed as the stock returned 3% 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.