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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Is RETA a good stock to buy? Reata Pharmaceuticals, Inc. (NASDAQ:RETA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that RETA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare RETA to other stocks including Spirit Airlines Incorporated (NYSE:SAVE), Eastern Bankshares, Inc. (NASDAQ:EBC), and SpringWorks Therapeutics, Inc. (NASDAQ:SWTX) to get a better sense of its popularity.
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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
James E. Flynn of Deerfield Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's take a look at the key hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Do Hedge Funds Think RETA Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RETA over the last 23 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Duquesne Capital, managed by Stanley Druckenmiller, holds the biggest position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA). Duquesne Capital has a $74.8 million position in the stock, comprising 1.9% of its 13F portfolio. Sitting at the No. 2 spot is Deerfield Management, managed by James E. Flynn, which holds a $41.9 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Bihua Chen's Cormorant Asset Management, Stephen DuBois's Camber Capital Management and Julian Baker and Felix Baker's Baker Bros. Advisors. In terms of the portfolio weights assigned to each position Duquesne Capital allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 1.92% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, setting aside 1.37 percent of its 13F equity portfolio to RETA.
Since Reata Pharmaceuticals, Inc. (NASDAQ:RETA) has witnessed declining sentiment from hedge fund managers, it's safe to say that there exists a select few hedgies that elected to cut their positions entirely by the end of the first quarter. It's worth mentioning that Mark Hart III's Corriente Advisors dumped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, totaling close to $64.9 million in stock. Frank Fu's fund, CaaS Capital, also dumped its stock, about $11.8 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Reata Pharmaceuticals, Inc. (NASDAQ:RETA). We will take a look at Spirit Airlines Incorporated (NYSE:SAVE), Eastern Bankshares, Inc. (NASDAQ:EBC), SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), WNS (Holdings) Limited (NYSE:WNS), Veracyte Inc (NASDAQ:VCYT), Yalla Group Limited (NYSE:YALA), and Riot Blockchain, Inc (NASDAQ:RIOT). This group of stocks' market valuations resemble RETA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAVE,24,250551,1 EBC,14,105049,-2 SWTX,22,1238860,0 WNS,21,261004,-2 VCYT,19,636621,4 YALA,10,26724,1 RIOT,12,112604,5 Average,17.4,375916,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $266 million in RETA's case. Spirit Airlines Incorporated (NYSE:SAVE) is the most popular stock in this table. On the other hand Yalla Group Limited (NYSE:YALA) is the least popular one with only 10 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RETA is 76.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Hedge funds were also right about betting on RETA as the stock returned 28.1% since the end of Q1 (through 7/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.