How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Albireo Pharma, Inc. (NASDAQ:ALBO) and determine whether hedge funds had an edge regarding this stock.
Albireo Pharma, Inc. (NASDAQ:ALBO) has seen a decrease in hedge fund interest in recent months. ALBO was in 10 hedge funds' portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with ALBO holdings at the end of the previous quarter. Our calculations also showed that ALBO 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="400"] Paul Marshall of Marshall Wace[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the recent hedge fund action surrounding Albireo Pharma, Inc. (NASDAQ:ALBO).
How are hedge funds trading Albireo Pharma, Inc. (NASDAQ:ALBO)?
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALBO over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Joseph Edelman's Perceptive Advisors has the number one position in Albireo Pharma, Inc. (NASDAQ:ALBO), worth close to $31.9 million, comprising 0.8% of its total 13F portfolio. Coming in second is Point72 Asset Management, led by Steve Cohen, holding a $8.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Julian Baker and Felix Baker's Baker Bros. Advisors, Lawrence Hawkins's Prosight Capital and Neil Shahrestani's Ikarian Capital. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Albireo Pharma, Inc. (NASDAQ:ALBO), around 2.53% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, dishing out 0.83 percent of its 13F equity portfolio to ALBO.
Because Albireo Pharma, Inc. (NASDAQ:ALBO) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of money managers that decided to sell off their full holdings in the first quarter. Intriguingly, Noam Gottesman's GLG Partners said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, valued at close to $2.4 million in stock. D. E. Shaw's fund, D E Shaw, also cut its stock, about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds in the first quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Albireo Pharma, Inc. (NASDAQ:ALBO) but similarly valued. These stocks are Hoegh LNG Partners LP (NYSE:HMLP), Preformed Line Products Company (NASDAQ:PLPC), Retail Value Inc. (NYSE:RVI), and Macatawa Bank Corporation (NASDAQ:MCBC). This group of stocks' market values match ALBO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HMLP,6,15718,1 PLPC,7,22936,0 RVI,13,72113,-3 MCBC,10,19243,2 Average,9,32503,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $56 million in ALBO's case. Retail Value Inc. (NYSE:RVI) is the most popular stock in this table. On the other hand Hoegh LNG Partners LP (NYSE:HMLP) is the least popular one with only 6 bullish hedge fund positions. Albireo Pharma, Inc. (NASDAQ:ALBO) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ALBO as the stock returned 61.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Get real-time email alerts: Follow Albireo Pharma Inc. (NASDAQ:ALBO)
Disclosure: None. This article was originally published at Insider Monkey.