Is Dermira Inc (NASDAQ:DERM) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Dermira Inc (NASDAQ:DERM) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that DERM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_338175" align="aligncenter" width="500"] Felix Baker of Baker Bros.[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the new hedge fund action surrounding Dermira Inc (NASDAQ:DERM).
How have hedgies been trading Dermira Inc (NASDAQ:DERM)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in DERM a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Partner Fund Management held the most valuable stake in Dermira Inc (NASDAQ:DERM), which was worth $24.5 million at the end of the third quarter. On the second spot was Polar Capital which amassed $20.9 million worth of shares. Great Point Partners, Baker Bros. Advisors, and Renaissance Technologies 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 Great Point Partners allocated the biggest weight to Dermira Inc (NASDAQ:DERM), around 1.54% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, setting aside 0.72 percent of its 13F equity portfolio to DERM.
As one would reasonably expect, key hedge funds were breaking ground themselves. Broadfin Capital, managed by Kevin Kotler, assembled the most outsized position in Dermira Inc (NASDAQ:DERM). Broadfin Capital had $3.7 million invested in the company at the end of the quarter. Ken Greenberg and David Kim's Ghost Tree Capital also made a $0.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Algert and Kevin Coldiron's Algert Coldiron Investors, Donald Sussman's Paloma Partners, and David Harding's Winton Capital Management.
Let's now review hedge fund activity in other stocks similar to Dermira Inc (NASDAQ:DERM). These stocks are Hallmark Financial Services, Inc. (NASDAQ:HALL), MediciNova, Inc. (NASDAQ:MNOV), Citizens, Inc. (NYSE:CIA), and Nam Tai Property Inc (NYSE:NTP). This group of stocks' market values are similar to DERM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HALL,12,40645,2 MNOV,2,3550,-2 CIA,2,2600,0 NTP,9,64699,2 Average,6.25,27874,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $113 million in DERM's case. Hallmark Financial Services, Inc. (NASDAQ:HALL) is the most popular stock in this table. On the other hand MediciNova, Inc. (NASDAQ:MNOV) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Dermira Inc (NASDAQ:DERM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DERM as the stock returned 27.4% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.