Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Strongbridge Biopharma plc (NASDAQ:SBBP).
Strongbridge Biopharma plc (NASDAQ:SBBP) has experienced an increase in support from the world's most elite money managers of late. SBBP was in 15 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with SBBP holdings at the end of the previous quarter. Our calculations also showed that SBBP isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We're going to take a peek at the new hedge fund action regarding Strongbridge Biopharma plc (NASDAQ:SBBP).
How are hedge funds trading Strongbridge Biopharma plc (NASDAQ:SBBP)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SBBP over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Broadfin Capital held the most valuable stake in Strongbridge Biopharma plc (NASDAQ:SBBP), which was worth $13.9 million at the end of the first quarter. On the second spot was Armistice Capital which amassed $12.4 million worth of shares. Moreover, Park West Asset Management, Opaleye Management, and Hudson Bay Capital Management were also bullish on Strongbridge Biopharma plc (NASDAQ:SBBP), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Vivo Capital, managed by Albert Cha and Frank Kung, established the most outsized position in Strongbridge Biopharma plc (NASDAQ:SBBP). Vivo Capital had $4.6 million invested in the company at the end of the quarter. Jim Simons's Renaissance Technologies also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's also examine hedge fund activity in other stocks similar to Strongbridge Biopharma plc (NASDAQ:SBBP). These stocks are Xeris Pharmaceuticals, Inc. (NASDAQ:XERS), Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), Preformed Line Products Company (NASDAQ:PLPC), and CBL & Associates Properties, Inc. (NYSE:CBL). All of these stocks' market caps resemble SBBP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XERS,7,56936,4 EIGR,22,166729,1 PLPC,7,31280,2 CBL,15,14297,0 Average,12.75,67311,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $63 million in SBBP's case. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is the most popular stock in this table. On the other hand Xeris Pharmaceuticals, Inc. (NASDAQ:XERS) is the least popular one with only 7 bullish hedge fund positions. Strongbridge Biopharma plc (NASDAQ:SBBP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately SBBP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SBBP were disappointed as the stock returned -31.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.