The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Revance Therapeutics Inc (NASDAQ:RVNC), and what that likely means for the prospects of the company and its stock.
Is Revance Therapeutics Inc (NASDAQ:RVNC) a buy here? Money managers are turning less bullish. The number of long hedge fund bets were cut by 2 lately. Our calculations also showed that RVNC isn't among the 30 most popular stocks among hedge funds (see the video below). RVNC was in 10 hedge funds' portfolios at the end of June. There were 12 hedge funds in our database with RVNC positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 new hedge fund action encompassing Revance Therapeutics Inc (NASDAQ:RVNC).
Hedge fund activity in Revance Therapeutics Inc (NASDAQ:RVNC)
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RVNC over the last 16 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Revance Therapeutics Inc (NASDAQ:RVNC), with a stake worth $17.3 million reported as of the end of March. Trailing Renaissance Technologies was Sio Capital, which amassed a stake valued at $5.2 million. Citadel Investment Group, Point72 Asset Management, and MFN Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Because Revance Therapeutics Inc (NASDAQ:RVNC) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few funds that slashed their positions entirely by the end of the second quarter. Intriguingly, Israel Englander's Millennium Management cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $0.5 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $0.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Revance Therapeutics Inc (NASDAQ:RVNC) but similarly valued. These stocks are Gamco Investors Inc. (NYSE:GBL), FRP Holdings Inc (NASDAQ:FRPH), EZCORP Inc (NASDAQ:EZPW), and Infinera Corporation (NASDAQ:INFN). This group of stocks' market values match RVNC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBL,10,10355,1 FRPH,7,46456,-1 EZPW,21,121607,1 INFN,11,89333,-8 Average,12.25,66938,-1.75 [/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 $67 million. That figure was $28 million in RVNC's case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand FRP Holdings Inc (NASDAQ:FRPH) is the least popular one with only 7 bullish hedge fund positions. Revance Therapeutics Inc (NASDAQ:RVNC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately RVNC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RVNC investors were disappointed as the stock returned 0.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.