It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Strongbridge Biopharma plc (NASDAQ:SBBP).
Is Strongbridge Biopharma plc (NASDAQ:SBBP) a bargain? Hedge funds are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 1 recently. Our calculations also showed that SBBP isn't among the 30 most popular stocks among hedge funds. SBBP was in 19 hedge funds' portfolios at the end of September. There were 20 hedge funds in our database with SBBP positions at the end of the previous quarter.
According to most stock holders, hedge funds are assumed to be unimportant, outdated investment vehicles of the past. While there are greater than 8,000 funds in operation at the moment, Our experts look at the bigwigs of this group, approximately 700 funds. These hedge fund managers handle the majority of the smart money's total asset base, and by tracking their unrivaled equity investments, Insider Monkey has discovered many investment strategies that have historically surpassed the market. Insider Monkey's flagship hedge fund strategy defeated the S&P 500 index by 6 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
We're going to take a glance at the key hedge fund action surrounding Strongbridge Biopharma plc (NASDAQ:SBBP).
What have hedge funds been doing with Strongbridge Biopharma plc (NASDAQ:SBBP)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SBBP over the last 13 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Lyon Street Capital was the largest shareholder of Strongbridge Biopharma plc (NASDAQ:SBBP), with a stake worth $13.9 million reported as of the end of September. Trailing Lyon Street Capital was Armistice Capital, which amassed a stake valued at $12.9 million. Broadfin Capital, Opaleye Management, and Park West Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Strongbridge Biopharma plc (NASDAQ:SBBP) has faced a decline in interest from hedge fund managers, we can see that there is a sect of hedgies that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Joseph Edelman's Perceptive Advisors dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, comprising close to $1.7 million in stock. Ben Levine, Andrew Manuel and Stefan Renold's fund, LMR Partners, also sold off its stock, about $0.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Strongbridge Biopharma plc (NASDAQ:SBBP) but similarly valued. These stocks are Aerohive Networks Inc (NYSE:HIVE), Bassett Furniture Industries Inc. (NASDAQ:BSET), NACCO Industries, Inc. (NYSE:NC), and Nuveen AMT-Free Municipal Value Fund (NYSE:NUW). This group of stocks' market values resemble SBBP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIVE,13,32404,1 BSET,12,58349,1 NC,8,10309,0 NUW,1,1127,0 Average,8.5,25547,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $76 million in SBBP's case. Aerohive Networks Inc (NYSE:HIVE) is the most popular stock in this table. On the other hand Nuveen AMT-Free Municipal Value Fund (NYSE:NUW) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Strongbridge Biopharma plc (NASDAQ:SBBP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.