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Hedge Funds Are Done Buying ESSA Pharma Inc. (EPIX)

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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 ESSA Pharma Inc. (NASDAQ:EPIX).

Is ESSA Pharma Inc. (NASDAQ:EPIX) undervalued? Money managers were in a pessimistic mood. The number of long hedge fund bets went down by 2 in recent months. ESSA Pharma Inc. (NASDAQ:EPIX) was in 26 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 28. Our calculations also showed that EPIX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 28 hedge funds in our database with EPIX positions at the end of the first quarter.

According to most shareholders, hedge funds are seen as slow, old financial tools of years past. While there are more than 8000 funds with their doors open at the moment, Our experts look at the upper echelon of this group, around 850 funds. It is estimated that this group of investors watch over the lion's share of the smart money's total asset base, and by watching their highest performing equity investments, Insider Monkey has brought to light a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to check out the recent hedge fund action surrounding ESSA Pharma Inc. (NASDAQ:EPIX).

Do Hedge Funds Think EPIX Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in EPIX over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of ESSA Pharma Inc. (NASDAQ:EPIX), with a stake worth $70 million reported as of the end of June. Trailing Biotechnology Value Fund / BVF Inc was Soleus Capital, which amassed a stake valued at $63.9 million. Vivo Capital, Adage Capital Management, and Citadel Investment Group 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 Soleus Capital allocated the biggest weight to ESSA Pharma Inc. (NASDAQ:EPIX), around 9.83% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, earmarking 6.8 percent of its 13F equity portfolio to EPIX.

Because ESSA Pharma Inc. (NASDAQ:EPIX) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few fund managers that elected to cut their positions entirely by the end of the second quarter. It's worth mentioning that Neil Shahrestani's Ikarian Capital dropped the largest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $7.7 million in stock. Devesh Gandhi's fund, SilverArc Capital, also cut its stock, about $2.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as ESSA Pharma Inc. (NASDAQ:EPIX) but similarly valued. We will take a look at Amerisafe, Inc. (NASDAQ:AMSF), Repare Therapeutics Inc. (NASDAQ:RPTX), Green Brick Partners Inc (NASDAQ:GRBK), Metromile, Inc. (NASDAQ:MILE), The Aaron's Company, Inc. (NYSE:AAN), Orion Engineered Carbons SA (NYSE:OEC), and Arko Corp. (NASDAQ:ARKO). This group of stocks' market values resemble EPIX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMSF,14,51894,6 RPTX,16,441483,-2 GRBK,14,449163,-4 MILE,15,137738,-4 AAN,15,85410,-3 OEC,23,187973,4 ARKO,18,28110,-3 Average,16.4,197396,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.4 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $359 million in EPIX's case. Orion Engineered Carbons SA (NYSE:OEC) is the most popular stock in this table. On the other hand Amerisafe, Inc. (NASDAQ:AMSF) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks ESSA Pharma Inc. (NASDAQ:EPIX) is more popular among hedge funds. Our overall hedge fund sentiment score for EPIX is 80.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Unfortunately EPIX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EPIX were disappointed as the stock returned -71.6% since the end of the second quarter (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.