Hedge Funds Are Souring On Biohaven Pharmaceutical Holding Company Ltd. (BHVN)
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) in this article.
Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) investors should be aware of a decrease in activity from the world's largest hedge funds lately. BHVN was in 35 hedge funds' portfolios at the end of December. There were 36 hedge funds in our database with BHVN positions at the end of the previous quarter. Our calculations also showed that BHVN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
[caption id="attachment_364882" align="aligncenter" width="400"]
Mark Kingdon of Kingdon Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's go over the latest hedge fund action encompassing Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).
Hedge fund activity in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)
At Q4's end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in BHVN a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Kingdon Capital held the most valuable stake in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), which was worth $68.5 million at the end of the third quarter. On the second spot was Cormorant Asset Management which amassed $54.4 million worth of shares. Adage Capital Management, Knoll Capital Management, and Armistice Capital 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 Knoll Capital Management allocated the biggest weight to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), around 34.43% of its 13F portfolio. Blackcrane Capital is also relatively very bullish on the stock, setting aside 11.64 percent of its 13F equity portfolio to BHVN.
Seeing as Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) has witnessed bearish sentiment from the smart money, logic holds that there exists a select few funds that decided to sell off their positions entirely heading into Q4. It's worth mentioning that Carl Tiedemann and Michael Tiedemann's TIG Advisors dropped the biggest investment of all the hedgies followed by Insider Monkey, worth an estimated $19.2 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $5.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) but similarly valued. We will take a look at World Fuel Services Corporation (NYSE:INT), PolyOne Corporation (NYSE:POL), Allegiant Travel Company (NASDAQ:ALGT), and International Bancshares Corp (NASDAQ:IBOC). All of these stocks' market caps are closest to BHVN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INT,22,223464,3 POL,24,265035,2 ALGT,24,618035,6 IBOC,20,195845,3 Average,22.5,325595,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $501 million in BHVN's case. PolyOne Corporation (NYSE:POL) is the most popular stock in this table. On the other hand International Bancshares Corp (NASDAQ:IBOC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately BHVN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BHVN were disappointed as the stock returned -38.5% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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