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Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Kala Pharmaceuticals, Inc. (NASDAQ:KALA).
Kala Pharmaceuticals, Inc. (NASDAQ:KALA) has seen an increase in support from the world's most elite money managers of late. KALA was in 9 hedge funds' portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with KALA holdings at the end of the previous quarter. Our calculations also showed that KALA 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.
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Peter Kolchinsky of RA Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to analyze the key hedge fund action surrounding Kala Pharmaceuticals, Inc. (NASDAQ:KALA).
What does smart money think about Kala Pharmaceuticals, Inc. (NASDAQ:KALA)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KALA over the last 17 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, RA Capital Management was the largest shareholder of Kala Pharmaceuticals, Inc. (NASDAQ:KALA), with a stake worth $17.3 million reported as of the end of September. Trailing RA Capital Management was OrbiMed Advisors, which amassed a stake valued at $13.1 million. Vivo Capital, Millennium Management, and Alyeska Investment Group 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 RA Capital Management allocated the biggest weight to Kala Pharmaceuticals, Inc. (NASDAQ:KALA), around 1.03% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, earmarking 0.45 percent of its 13F equity portfolio to KALA.
As one would reasonably expect, key money managers were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, established the largest position in Kala Pharmaceuticals, Inc. (NASDAQ:KALA). Point72 Asset Management had $1.2 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron's Algert Coldiron Investors also made a $0.2 million investment in the stock during the quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Kala Pharmaceuticals, Inc. (NASDAQ:KALA) but similarly valued. We will take a look at Nymox Pharmaceutical Corporation (NASDAQ:NYMX), ConforMIS, Inc. (NASDAQ:CFMS), Trinity Place Holdings Inc. (NYSE:TPHS), and Perion Network Ltd (NASDAQ:PERI). This group of stocks' market caps match KALA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NYMX,4,960,0 CFMS,8,25765,1 TPHS,12,60747,2 PERI,3,9261,2 Average,6.75,24183,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $42 million in KALA's case. Trinity Place Holdings Inc. (NYSE:TPHS) is the most popular stock in this table. On the other hand Perion Network Ltd (NASDAQ:PERI) is the least popular one with only 3 bullish hedge fund positions. Kala Pharmaceuticals, Inc. (NASDAQ:KALA) 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 KALA, though not to the same extent, as the stock returned 9.6% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.