Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Horizon Pharma Public Limited Company (NASDAQ:HZNP) a bargain? The best stock pickers are becoming less confident. The number of bullish hedge fund positions were cut by 2 recently. Our calculations also showed that HZNP 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_25305" align="aligncenter" width="600"] John Paulson of Paulson & Co[/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 fresh hedge fund action surrounding Horizon Pharma Public Limited Company (NASDAQ:HZNP).
How have hedgies been trading Horizon Pharma Public Limited Company (NASDAQ:HZNP)?
Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HZNP over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Horizon Pharma Public Limited Company (NASDAQ:HZNP) was held by Renaissance Technologies, which reported holding $254.6 million worth of stock at the end of September. It was followed by Paulson & Co with a $222.5 million position. Other investors bullish on the company included Deerfield Management, D E Shaw, and Scopia Capital. In terms of the portfolio weights assigned to each position Deerfield Management allocated the biggest weight to Horizon Pharma Public Limited Company (NASDAQ:HZNP), around 7.17% of its portfolio. Scopia Capital is also relatively very bullish on the stock, setting aside 6.73 percent of its 13F equity portfolio to HZNP.
Because Horizon Pharma Public Limited Company (NASDAQ:HZNP) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $9.5 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also cut its stock, about $2.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to Horizon Pharma Public Limited Company (NASDAQ:HZNP). We will take a look at Avalara, Inc. (NYSE:AVLR), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), bluebird bio Inc (NASDAQ:BLUE), and ONE Gas Inc (NYSE:OGS). All of these stocks' market caps are closest to HZNP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVLR,44,1102762,4 TKC,5,5614,-2 BLUE,16,146471,-6 OGS,17,95793,3 Average,20.5,337660,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $1380 million in HZNP's case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Horizon Pharma Public Limited Company (NASDAQ:HZNP) is not the most popular stock in this group but hedge fund interest is still above average. 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 HZNP as the stock returned 20.4% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.