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In this article we will check out the progression of hedge fund sentiment towards Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) shareholders have witnessed a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that PHAT isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Peter Kolchinsky of RA Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action encompassing Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT).
What does smart money think about Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT)?
At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PHAT over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Frazier Healthcare Partners, managed by Alan Frazier, holds the biggest position in Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT). Frazier Healthcare Partners has a $188.1 million position in the stock, comprising 21.3% of its 13F portfolio. Coming in second is RA Capital Management, managed by Peter Kolchinsky, which holds a $95.7 million position; the fund has 3% of its 13F portfolio invested in the stock. Other peers that are bullish contain Mark Lampert's Biotechnology Value Fund / BVF Inc, C. Ashton Newhall and James Lim's Greenspring Associates and Michael Gelband's ExodusPoint Capital. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT), around 21.32% of its 13F portfolio. Greenspring Associates is also relatively very bullish on the stock, earmarking 3.86 percent of its 13F equity portfolio to PHAT.
Due to the fact that Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedge funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Anand Parekh's Alyeska Investment Group dumped the largest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $0.7 million in stock, and Parvinder Thiara's Athanor Capital was right behind this move, as the fund dropped about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT). These stocks are Berkshire Hills Bancorp, Inc. (NYSE:BHLB), National Bank Holdings Corp (NYSE:NBHC), I-Mab (NASDAQ:IMAB), and Enterprise Financial Services Corp (NASDAQ:EFSC). This group of stocks' market valuations resemble PHAT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHLB,15,23209,6 NBHC,8,47803,-1 IMAB,4,19613,4 EFSC,8,25205,-6 Average,8.75,28958,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $311 million in PHAT's case. Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the most popular stock in this table. On the other hand I-Mab (NASDAQ:IMAB) is the least popular one with only 4 bullish hedge fund positions. Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on PHAT as the stock returned 93.9% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.