It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Supernus Pharmaceuticals Inc (NASDAQ:SUPN).
Supernus Pharmaceuticals Inc (NASDAQ:SUPN) investors should pay attention to an increase in activity from the world's largest hedge funds recently. Our calculations also showed that SUPN isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the new hedge fund action encompassing Supernus Pharmaceuticals Inc (NASDAQ:SUPN).
What have hedge funds been doing with Supernus Pharmaceuticals Inc (NASDAQ:SUPN)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in SUPN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Marshall Wace LLP held the most valuable stake in Supernus Pharmaceuticals Inc (NASDAQ:SUPN), which was worth $14.1 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $11.4 million worth of shares. Moreover, Winton Capital Management, Millennium Management, and AlphaOne Capital Partners were also bullish on Supernus Pharmaceuticals Inc (NASDAQ:SUPN), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. D E Shaw, managed by D. E. Shaw, established the biggest position in Supernus Pharmaceuticals Inc (NASDAQ:SUPN). D E Shaw had $1.8 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.2 million position during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Supernus Pharmaceuticals Inc (NASDAQ:SUPN) but similarly valued. We will take a look at Crocs, Inc. (NASDAQ:CROX), Realogy Holdings Corp (NYSE:RLGY), Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), and The Bank of N.T. Butterfield & Son Limited (NYSE:NTB). All of these stocks' market caps resemble SUPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CROX,26,340892,-1 RLGY,20,445074,-3 MDGL,19,287555,-7 NTB,16,114434,0 Average,20.25,296989,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $56 million in SUPN's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Supernus Pharmaceuticals Inc (NASDAQ:SUPN) is even less popular than NTB. Hedge funds dodged a bullet by taking a bearish stance towards SUPN. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SUPN wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); SUPN investors were disappointed as the stock returned 9.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.