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Royalty Pharma Plc (RPRX) Fell Out Of Favor With Hedge Funds

·6 min read

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 June 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Royalty Pharma Plc (NASDAQ:RPRX).

Royalty Pharma Plc (NASDAQ:RPRX) was in 20 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 26. RPRX has seen a decrease in enthusiasm from smart money lately. There were 26 hedge funds in our database with RPRX positions at the end of the first quarter. Our calculations also showed that RPRX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Ole Andreas Halvorsen Viking Global
Ole Andreas Halvorsen Viking Global

Ole Andreas Halvorsen of Viking Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. With all of this in mind let's take a look at the fresh hedge fund action regarding Royalty Pharma Plc (NASDAQ:RPRX).

Do Hedge Funds Think RPRX Is A Good Stock To Buy Now?

At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RPRX over the last 24 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is RPRX A Good Stock To Buy?
Is RPRX A Good Stock To Buy?

The largest stake in Royalty Pharma Plc (NASDAQ:RPRX) was held by Adage Capital Management, which reported holding $931.4 million worth of stock at the end of June. It was followed by Harvard Management Co with a $292.8 million position. Other investors bullish on the company included Viking Global, Renaissance Technologies, and Millennium Management. In terms of the portfolio weights assigned to each position Harvard Management Co allocated the biggest weight to Royalty Pharma Plc (NASDAQ:RPRX), around 16.85% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, earmarking 1.82 percent of its 13F equity portfolio to RPRX.

Because Royalty Pharma Plc (NASDAQ:RPRX) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers that slashed their full holdings by the end of the second quarter. Interestingly, Arthur B Cohen and Joseph Healey's Healthcor Management LP sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $25.8 million in stock, and Simon Sadler's Segantii Capital was right behind this move, as the fund dropped about $12.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Royalty Pharma Plc (NASDAQ:RPRX) but similarly valued. These stocks are Credit Suisse Group AG (NYSE:CS), ONEOK, Inc. (NYSE:OKE), Yandex NV (NASDAQ:YNDX), CDW Corporation (NASDAQ:CDW), Ryanair Holdings plc (NASDAQ:RYAAY), Fresenius Medical Care AG & Co. (NYSE:FMS), and XP Inc. (NASDAQ:XP). This group of stocks' market valuations resemble RPRX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CS,10,136568,-3 OKE,26,178712,6 YNDX,31,1361733,2 CDW,27,1760880,-3 RYAAY,15,456068,1 FMS,5,5127,-7 XP,25,579824,2 Average,19.9,639845,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $1557 million in RPRX's case. Yandex NV (NASDAQ:YNDX) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 5 bullish hedge fund positions. Royalty Pharma Plc (NASDAQ:RPRX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RPRX is 50.9. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately RPRX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on RPRX were disappointed as the stock returned -8.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.