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Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Tricida, Inc. (NASDAQ:TCDA).
Hedge fund interest in Tricida, Inc. (NASDAQ:TCDA) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Magellan Health Inc (NASDAQ:MGLN), Harsco Corporation (NYSE:HSC), and Bandwidth Inc. (NASDAQ:BAND) to gather more data points. Our calculations also showed that TCDA 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.
According to most market participants, hedge funds are perceived as underperforming, outdated financial tools of years past. While there are greater than 8000 funds trading at present, Our experts choose to focus on the aristocrats of this group, around 750 funds. Most estimates calculate that this group of people manage bulk of all hedge funds' total capital, and by following their inimitable stock picks, Insider Monkey has identified many investment strategies that have historically beaten the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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Samuel Isaly of OrbiMed Advisors[/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. We're going to analyze the latest hedge fund action surrounding Tricida, Inc. (NASDAQ:TCDA).
What does smart money think about Tricida, Inc. (NASDAQ:TCDA)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TCDA over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Tricida, Inc. (NASDAQ:TCDA) was held by OrbiMed Advisors, which reported holding $343.1 million worth of stock at the end of September. It was followed by venBio Select Advisor with a $67.9 million position. Other investors bullish on the company included Redmile Group, Baker Bros. Advisors, and Vivo Capital. In terms of the portfolio weights assigned to each position OrbiMed Advisors allocated the biggest weight to Tricida, Inc. (NASDAQ:TCDA), around 6.51% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, setting aside 4.91 percent of its 13F equity portfolio to TCDA.
Since Tricida, Inc. (NASDAQ:TCDA) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedgies that elected to cut their positions entirely heading into Q4. Intriguingly, David E. Shaw's D E Shaw cut the largest investment of all the hedgies tracked by Insider Monkey, worth about $1.7 million in stock. Renaissance Technologies, also cut its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tricida, Inc. (NASDAQ:TCDA) but similarly valued. These stocks are Magellan Health Inc (NASDAQ:MGLN), Harsco Corporation (NYSE:HSC), Bandwidth Inc. (NASDAQ:BAND), and MicroStrategy Incorporated (NASDAQ:MSTR). This group of stocks' market caps resemble TCDA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGLN,17,284049,-2 HSC,18,181922,0 BAND,20,134079,2 MSTR,20,164593,3 Average,18.75,191161,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $703 million in TCDA's case. Bandwidth Inc. (NASDAQ:BAND) is the most popular stock in this table. On the other hand Magellan Health Inc (NASDAQ:MGLN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Tricida, Inc. (NASDAQ:TCDA) is even less popular than MGLN. Hedge funds clearly dropped the ball on TCDA as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on TCDA as the stock returned 29.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.