The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 28 holdings, data that is available nowhere else. Should you consider Epizyme Inc (NASDAQ:EPZM) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is Epizyme Inc (NASDAQ:EPZM) a good investment right now? Hedge funds are in an optimistic mood. The number of long hedge fund bets increased by 2 recently. Our calculations also showed that EPZM isn't among the 30 most popular stocks among hedge funds (see the video below). EPZM was in 21 hedge funds' portfolios at the end of June. There were 19 hedge funds in our database with EPZM positions at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action encompassing Epizyme Inc (NASDAQ:EPZM).
Hedge fund activity in Epizyme Inc (NASDAQ:EPZM)
At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in EPZM over the last 16 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
[caption id="attachment_758434" align="aligncenter" width="450"] Nathan Fischel of DAFNA Capital[/caption]
More specifically, Redmile Group was the largest shareholder of Epizyme Inc (NASDAQ:EPZM), with a stake worth $109.6 million reported as of the end of March. Trailing Redmile Group was Palo Alto Investors, which amassed a stake valued at $87 million. Consonance Capital Management, Rock Springs Capital Management, and Opaleye Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, assembled the largest position in Epizyme Inc (NASDAQ:EPZM). Renaissance Technologies had $5.4 million invested in the company at the end of the quarter. Nathan Fischel's DAFNA Capital Management also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new EPZM investors: Nick Thakore's Diametric Capital, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Cliff Asness's AQR Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Epizyme Inc (NASDAQ:EPZM) but similarly valued. We will take a look at Harmony Gold Mining Company Limited (NYSE:HMY), Intrexon Corp (NASDAQ:XON), FormFactor, Inc. (NASDAQ:FORM), and Innovative Industrial Properties, Inc. (NYSE:IIPR). This group of stocks' market valuations are closest to EPZM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMY,10,40696,1 XON,10,82829,2 FORM,14,44283,3 IIPR,10,24592,1 Average,11,48100,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $350 million in EPZM's case. FormFactor, Inc. (NASDAQ:FORM) is the most popular stock in this table. On the other hand Harmony Gold Mining Company Limited (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Epizyme Inc (NASDAQ:EPZM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EPZM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EPZM were disappointed as the stock returned -17.8% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.