Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Is Reata Pharmaceuticals, Inc. (NASDAQ:RETA) the right investment to pursue these days? The best stock pickers are turned less bullish heading into Q3. The number of long hedge fund positions were trimmed by 3 recently. Our calculations also showed that RETA isn't among the 30 most popular stocks among hedge funds (see the video below). Reeta was pitched at this year's Sohn Conference by Cormorant Asset Management when it was trading around $80 and it traded around $80 for 5 months or so. It seems like investors didn't find Cormorant's thesis very credible as we didn't see a big jump in hedge fund sentiment. Instead, some hedge funds took the small bounce in stock price as an opportunity to exit this stock. We listed these hedge funds below. 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 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.
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 review the fresh hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
How are hedge funds trading Reata Pharmaceuticals, Inc. (NASDAQ:RETA)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RETA over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cormorant Asset Management held the most valuable stake in Reata Pharmaceuticals, Inc. (NASDAQ:RETA), which was worth $76.1 million at the end of the second quarter. On the second spot was Farallon Capital which amassed $75.5 million worth of shares. Moreover, Millennium Management, Point72 Asset Management, and Driehaus Capital were also bullish on Reata Pharmaceuticals, Inc. (NASDAQ:RETA), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Reata Pharmaceuticals, Inc. (NASDAQ:RETA) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of fund managers that slashed their positions entirely heading into Q3. It's worth mentioning that Noam Gottesman's GLG Partners sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, totaling about $3.7 million in stock. D. E. Shaw's fund, D E Shaw, also cut its stock, about $2.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) but similarly valued. We will take a look at BancorpSouth Bank (NYSE:BXS), AllianceBernstein Holding LP (NYSE:AB), Glaukos Corporation (NYSE:GKOS), and AU Optronics Corp. (NYSE:AUO). This group of stocks' market valuations match RETA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BXS,12,62543,3 AB,10,25072,2 GKOS,15,65405,0 AUO,7,60738,-1 Average,11,53440,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $287 million in RETA's case. Glaukos Corporation (NYSE:GKOS) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 7 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the most popular stock in this group together with GKOS. Even though RETA shareholders were disappointed as the stock returned -14.9% during the third quarter and underperformed the market, they have plenty to cheer in Q4 as the stock's price surpassed $200.
Disclosure: None. This article was originally published at Insider Monkey.