Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Xenon Pharmaceuticals Inc (NASDAQ:XENE) based on that data and determine whether they were really smart about the stock.
Is Xenon Pharmaceuticals Inc (NASDAQ:XENE) a buy, sell, or hold? The best stock pickers were reducing their bets on the stock. The number of long hedge fund bets went down by 1 recently. Xenon Pharmaceuticals Inc (NASDAQ:XENE) was in 27 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that XENE 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.
Phillip Gross of Adage Capital
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. Now let's go over the latest hedge fund action encompassing Xenon Pharmaceuticals Inc (NASDAQ:XENE).
Hedge fund activity in Xenon Pharmaceuticals Inc (NASDAQ:XENE)
At the end of June, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in XENE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Biotechnology Value Fund / BVF Inc held the most valuable stake in Xenon Pharmaceuticals Inc (NASDAQ:XENE), which was worth $44.1 million at the end of the third quarter. On the second spot was Avoro Capital Advisors (venBio Select Advisor) which amassed $35.1 million worth of shares. OrbiMed Advisors, Adage Capital Management, and Renaissance Technologies 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 Biotechnology Value Fund / BVF Inc allocated the biggest weight to Xenon Pharmaceuticals Inc (NASDAQ:XENE), around 2.72% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, designating 2.09 percent of its 13F equity portfolio to XENE.
Due to the fact that Xenon Pharmaceuticals Inc (NASDAQ:XENE) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of money managers who were dropping their positions entirely last quarter. Interestingly, Mitchell Blutt's Consonance Capital Management sold off the largest stake of all the hedgies tracked by Insider Monkey, worth about $22.4 million in stock. Marc Schneidman's fund, Aquilo Capital Management, also said goodbye to its stock, about $17 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Xenon Pharmaceuticals Inc (NASDAQ:XENE) but similarly valued. We will take a look at First Mid Bancshares, Inc. (NASDAQ:FMBH), MEI Pharma Inc (NASDAQ:MEIP), American Public Education, Inc. (NASDAQ:APEI), BioDelivery Sciences International, Inc. (NASDAQ:BDSI), Establishment Labs Holdings Inc. (NASDAQ:ESTA), Boston Omaha Corporation (NASDAQ:BOMN), and NeoPhotonics Corp (NYSE:NPTN). This group of stocks' market values resemble XENE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMBH,3,3665,-2 MEIP,20,82574,6 APEI,16,75539,3 BDSI,26,112350,-1 ESTA,11,78982,-3 BOMN,12,171784,7 NPTN,23,75501,-1 Average,15.9,85771,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $226 million in XENE's case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand First Mid Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Xenon Pharmaceuticals Inc (NASDAQ:XENE) is more popular among hedge funds. Our overall hedge fund sentiment score for XENE 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 XENE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on XENE were disappointed as the stock returned -12.2% 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.