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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).
Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) was in 8 hedge funds' portfolios at the end of March. SPPI investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 13 hedge funds in our database with SPPI holdings at the end of the previous quarter. Our calculations also showed that SPPI 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Noam Gottesman of GLG Partners[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now we're going to take a glance at the recent hedge fund action encompassing Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).
Hedge fund activity in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)
At Q1's end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPPI over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), which was worth $5.3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $1.6 million worth of shares. Two Sigma Advisors, Fisher Asset Management, and PDT 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 PDT Partners allocated the biggest weight to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to SPPI.
Since Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) has faced declining sentiment from hedge fund managers, it's easy to see that there were a few funds that decided to sell off their full holdings last quarter. Intriguingly, Kamran Moghtaderi's Eversept Partners dropped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at about $0.7 million in stock, and Sander Gerber's Hudson Bay Capital Management was right behind this move, as the fund dumped about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). These stocks are The Cato Corporation (NYSE:CATO), Nexgen Energy Ltd. (NYSE:NXE), Guaranty Bancshares, Inc. (NASDAQ:GNTY), and Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL). This group of stocks' market values resemble SPPI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CATO,10,18891,-5 NXE,5,9155,-1 GNTY,2,2887,-1 RIGL,14,61151,-3 Average,7.75,23021,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $9 million in SPPI's case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Guaranty Bancshares, Inc. (NASDAQ:GNTY) is the least popular one with only 2 bullish hedge fund positions. Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on SPPI as the stock returned 26.2% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.