At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) makes for a good investment right now.
Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) shareholders have witnessed a decrease in support from the world's most elite money managers recently. RYTM was in 8 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with RYTM positions at the end of the previous quarter. Our calculations also showed that RYTM 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_261250" align="alignnone" width="600"] Peter Kolchinsky of RA 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. Let's take a look at the latest hedge fund action surrounding Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM).
How have hedgies been trading Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM)?
At Q3's end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RYTM over the last 17 quarters. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, RA Capital Management, managed by Peter Kolchinsky, holds the number one position in Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). RA Capital Management has a $73.9 million position in the stock, comprising 4.4% of its 13F portfolio. The second most bullish fund manager is Baker Bros. Advisors, led by Julian Baker and Felix Baker, holding a $58.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of James E. Flynn's Deerfield Management, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), around 4.4% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 2.28 percent of its 13F equity portfolio to RYTM.
Since Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Samuel Isaly's OrbiMed Advisors dropped the largest position of all the hedgies followed by Insider Monkey, valued at close to $17.3 million in stock, and Joseph Edelman's Perceptive Advisors was right behind this move, as the fund said goodbye to about $5.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). These stocks are Garrett Motion Inc. (NYSE:GTX), ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS), Bryn Mawr Bank Corp. (NASDAQ:BMTC), and Whiting Petroleum Corporation (NYSE:WLL). This group of stocks' market caps are closest to RYTM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTX,27,207710,4 IMOS,3,33579,1 BMTC,9,36594,0 WLL,25,58618,2 Average,16,84125,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $201 million in RYTM's case. Garrett Motion Inc. (NYSE:GTX) is the most popular stock in this table. On the other hand ChipMOS Technologies (Bermuda) Ltd (NASDAQ:IMOS) is the least popular one with only 3 bullish hedge fund positions. Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately RYTM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RYTM investors were disappointed as the stock returned 4% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.