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 at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Emergent Biosolutions Inc (NYSE:EBS) and determine whether the smart money was really smart about this stock.
Emergent Biosolutions Inc (NYSE:EBS) investors should pay attention to an increase in support from the world's most elite money managers of late. Emergent Biosolutions Inc (NYSE:EBS) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EBS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to analyze the key hedge fund action encompassing Emergent Biosolutions Inc (NYSE:EBS).
How are hedge funds trading Emergent Biosolutions Inc (NYSE:EBS)?
At second quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EBS over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Emergent Biosolutions Inc (NYSE:EBS), which was worth $44.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $30.4 million worth of shares. Royce & Associates, Portolan Capital Management, and GLG Partners 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 Portolan Capital Management allocated the biggest weight to Emergent Biosolutions Inc (NYSE:EBS), around 1.19% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.52 percent of its 13F equity portfolio to EBS.
As one would reasonably expect, key hedge funds were breaking ground themselves. Paloma Partners, managed by Donald Sussman, assembled the largest position in Emergent Biosolutions Inc (NYSE:EBS). Paloma Partners had $0.6 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom's Sectoral Asset Management also made a $0.5 million investment in the stock during the quarter. The other funds with brand new EBS positions are Bruce Kovner's Caxton Associates LP, Israel Englander's Millennium Management, and Jonathan Soros's JS Capital.
Let's go over hedge fund activity in other stocks similar to Emergent Biosolutions Inc (NYSE:EBS). We will take a look at Littelfuse, Inc. (NASDAQ:LFUS), MorphoSys AG (NASDAQ:MOR), LogMeIn Inc (NASDAQ:LOGM), Redfin Corporation (NASDAQ:RDFN), New Relic Inc (NYSE:NEWR), Nektar Therapeutics (NASDAQ:NKTR), and First Citizens BancShares Inc. (NASDAQ:FCNCA). This group of stocks' market caps match EBS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LFUS,24,316882,2 MOR,6,12533,1 LOGM,31,785090,3 RDFN,26,203341,6 NEWR,35,1206690,4 NKTR,26,269126,9 FCNCA,15,112679,-2 Average,23.3,415192,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $415 million. That figure was $120 million in EBS's case. New Relic Inc (NYSE:NEWR) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 6 bullish hedge fund positions. Emergent Biosolutions Inc (NYSE:EBS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EBS is 64.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on EBS as the stock returned 30.7% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.