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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL).
Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) has seen an increase in hedge fund interest of late. Our calculations also showed that RIGL 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the key hedge fund action surrounding Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL).
How are hedge funds trading Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL)?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in RIGL a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), with a stake worth $14.3 million reported as of the end of September. Trailing Millennium Management was Tamarack Capital Management, which amassed a stake valued at $10.2 million. Rock Springs Capital Management, Citadel Investment Group, and Palo Alto Investors 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 Tamarack Capital Management allocated the biggest weight to Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), around 2.67% of its 13F portfolio. Palo AltIs TickerSymbol A Good Stock To Buy?o Investors is also relatively very bullish on the stock, designating 0.45 percent of its 13F equity portfolio to RIGL.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. HighVista Strategies, managed by Andre F. Perold, established the most outsized position in Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL). HighVista Strategies had $0.1 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Noam Gottesman's GLG Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) but similarly valued. We will take a look at Prothena Corporation plc (NASDAQ:PRTA), Golden Star Resources Ltd. (NYSEAMEX:GSS), Natural Resource Partners LP (NYSE:NRP), and CEL-SCI Corporation (NYSEAMEX:CVM). This group of stocks' market valuations resemble RIGL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRTA,17,156799,-1 GSS,3,6932,-3 NRP,5,16842,-1 CVM,5,1807,3 Average,7.5,45595,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $59 million in RIGL's case. Prothena Corporation plc (NASDAQ:PRTA) is the most popular stock in this table. On the other hand Golden Star Resources Ltd. (NYSEAMEX:GSS) is the least popular one with only 3 bullish hedge fund positions. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) 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 RIGL as the stock returned 19.8% 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.