We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. That's a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Theravance Biopharma Inc (NASDAQ:TBPH) a good investment now? The smart money is taking a pessimistic view. The number of bullish hedge fund bets were cut by 1 in recent months. Our calculations also showed that TBPH isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the latest hedge fund action encompassing Theravance Biopharma Inc (NASDAQ:TBPH).
What does smart money think about Theravance Biopharma Inc (NASDAQ:TBPH)?
At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TBPH over the last 16 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Theravance Biopharma Inc (NASDAQ:TBPH) was held by Woodford Investment Management, which reported holding $198.6 million worth of stock at the end of March. It was followed by Baupost Group with a $152 million position. Other investors bullish on the company included Rock Springs Capital Management, Royce & Associates, and Clearline Capital.
Judging by the fact that Theravance Biopharma Inc (NASDAQ:TBPH) has faced falling interest from hedge fund managers, it's safe to say that there were a few money managers that elected to cut their entire stakes last quarter. Interestingly, David Costen Haley's HBK Investments dropped the biggest stake of the 750 funds watched by Insider Monkey, valued at about $0.6 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Theravance Biopharma Inc (NASDAQ:TBPH) but similarly valued. We will take a look at Mesa Laboratories, Inc. (NASDAQ:MLAB), Ballard Power Systems Inc. (NASDAQ:BLDP), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), and Coeur Mining, Inc. (NYSE:CDE). All of these stocks' market caps are similar to TBPH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLAB,8,54809,-2 BLDP,4,784,1 LTRPA,21,255525,-2 CDE,10,29389,-1 Average,10.75,85127,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $362 million in TBPH's case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 4 bullish hedge fund positions. Theravance Biopharma Inc (NASDAQ:TBPH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TBPH as the stock returned 19.3% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.