Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Ligand Pharmaceuticals Inc. (NASDAQ:LGND)? The smart money sentiment can provide an answer to this question.
Is Ligand Pharmaceuticals Inc. (NASDAQ:LGND) a healthy stock for your portfolio? The smart money is taking an optimistic view. The number of long hedge fund bets moved up by 1 lately. Our calculations also showed that LGND 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' 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 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 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.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton 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 as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's take a look at the fresh hedge fund action regarding Ligand Pharmaceuticals Inc. (NASDAQ:LGND).
How have hedgies been trading Ligand Pharmaceuticals Inc. (NASDAQ:LGND)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LGND over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ligand Pharmaceuticals Inc. (NASDAQ:LGND) was held by Renaissance Technologies, which reported holding $121.4 million worth of stock at the end of September. It was followed by Cardinal Capital with a $88.9 million position. Other investors bullish on the company included Dorset Management, Polar Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Ligand Pharmaceuticals Inc. (NASDAQ:LGND), around 14.77% of its 13F portfolio. Cardinal Capital is also relatively very bullish on the stock, dishing out 2.94 percent of its 13F equity portfolio to LGND.
As one would reasonably expect, some big names have jumped into Ligand Pharmaceuticals Inc. (NASDAQ:LGND) headfirst. Winton Capital Management, managed by David Harding, assembled the largest position in Ligand Pharmaceuticals Inc. (NASDAQ:LGND). Winton Capital Management had $1.7 million invested in the company at the end of the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ligand Pharmaceuticals Inc. (NASDAQ:LGND) but similarly valued. These stocks are AssetMark Financial Holdings, Inc. (NYSE:AMK), Great Western Bancorp Inc (NYSE:GWB), National Vision Holdings, Inc. (NASDAQ:EYE), and Colony Credit Real Estate, Inc. (NYSE:CLNC). All of these stocks' market caps match LGND's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMK,10,44658,10 GWB,11,46049,2 EYE,22,344437,1 CLNC,6,13571,-2 Average,12.25,112179,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $372 million in LGND's case. National Vision Holdings, Inc. (NASDAQ:EYE) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 6 bullish hedge fund positions. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) 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 LGND as the stock returned 13.5% 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.