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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) in this article.
Is Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) worth your attention right now? Prominent investors are becoming hopeful. The number of long hedge fund bets inched up by 3 in recent months. Our calculations also showed that ARNA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ARNA was in 33 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 30 hedge funds in our database with ARNA positions at the end of the previous quarter.
If you'd ask most traders, hedge funds are seen as slow, old financial vehicles of yesteryear. While there are greater than 8000 funds in operation at present, We look at the aristocrats of this club, approximately 850 funds. Most estimates calculate that this group of people preside over bulk of all hedge funds' total capital, and by shadowing their first-class stock picks, Insider Monkey has formulated many investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to analyze the key hedge fund action regarding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
What does smart money think about Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARNA over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Partner Fund Management was the largest shareholder of Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), with a stake worth $48.6 million reported as of the end of September. Trailing Partner Fund Management was Perceptive Advisors, which amassed a stake valued at $43.3 million. Alyeska Investment Group, GLG Partners, 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 Prosight Capital allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 6.54% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, designating 2.84 percent of its 13F equity portfolio to ARNA.
Consequently, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Arrowstreet Capital had $7.1 million invested in the company at the end of the quarter. Bhagwan Jay Rao's Integral Health Asset Management also initiated a $3.2 million position during the quarter. The other funds with brand new ARNA positions are Benjamin A. Smith's Laurion Capital Management, Donald Sussman's Paloma Partners, and Guy Levy's Soleus Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) but similarly valued. These stocks are Nu Skin Enterprises, Inc. (NYSE:NUS), Cleveland-Cliffs Inc (NYSE:CLF), Virgin Galactic Holdings, Inc. (NYSE:SPCE), and NMI Holdings Inc (NASDAQ:NMIH). This group of stocks' market values match ARNA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUS,22,231083,-1 CLF,31,231321,3 SPCE,32,285203,6 NMIH,21,263260,1 Average,26.5,252717,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $293 million in ARNA's case. Virgin Galactic Holdings, Inc. (NYSE:SPCE) is the most popular stock in this table. On the other hand NMI Holdings Inc (NASDAQ:NMIH) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on ARNA as the stock returned 4.2% so far in 2020 (through April 6th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.