U.S. Markets closed

Hedge Funds Dropped The Ball On Ionis Pharmaceuticals, Inc. (IONS)?

Nina Todic

Is Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) shareholders have witnessed a decrease in support from the world's most elite money managers recently. IONS was in 21 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with IONS holdings at the end of the previous quarter. Our calculations also showed that IONS isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

BlueMountain Capital Management's Returns, AUM and Holdings

We're going to take a gander at the fresh hedge fund action encompassing Ionis Pharmaceuticals, Inc. (NASDAQ:IONS).

What have hedge funds been doing with Ionis Pharmaceuticals, Inc. (NASDAQ:IONS)?

Heading into the first quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in IONS over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

IONS

More specifically, EcoR1 Capital was the largest shareholder of Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), with a stake worth $39.2 million reported as of the end of September. Trailing EcoR1 Capital was Two Sigma Advisors, which amassed a stake valued at $32.8 million. D E Shaw, PDT Partners, and Blue Mountain Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Since Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that elected to cut their positions entirely in the third quarter. Intriguingly, D. E. Shaw's D E Shaw cut the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $10.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund said goodbye to about $4.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Ionis Pharmaceuticals, Inc. (NASDAQ:IONS). These stocks are TIM Participacoes S.A. (NYSE:TSU), Tripadvisor Inc (NASDAQ:TRIP), Credit Acceptance Corp. (NASDAQ:CACC), and Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY). This group of stocks' market valuations are closest to IONS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSU,14,320035,-2 TRIP,29,1521641,3 CACC,22,990354,2 ALNY,28,628086,-4 Average,23.25,865029,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $141 million in IONS's case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 14 bullish hedge fund positions. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Only a few hedge funds were also right about betting on IONS as the stock returned 59.3% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

Related Content