Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is Sarepta Therapeutics Inc (NASDAQ:SRPT) the right investment to pursue these days? The smart money is selling. The number of long hedge fund bets shrunk by 4 in recent months. Our calculations also showed that SRPT isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We're going to take a look at the fresh hedge fund action encompassing Sarepta Therapeutics Inc (NASDAQ:SRPT).
How are hedge funds trading Sarepta Therapeutics Inc (NASDAQ:SRPT)?
At the end of the third quarter, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SRPT over the last 13 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of Sarepta Therapeutics Inc (NASDAQ:SRPT), with a stake worth $210 million reported as of the end of September. Trailing Adage Capital Management was venBio Select Advisor, which amassed a stake valued at $152.4 million. OrbiMed Advisors, Millennium Management, and Cadian Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Sarepta Therapeutics Inc (NASDAQ:SRPT) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of money managers who sold off their entire stakes in the third quarter. It's worth mentioning that Zach Schreiber's Point State Capital cut the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $26.3 million in call options. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its call options, about $15 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Sarepta Therapeutics Inc (NASDAQ:SRPT). These stocks are Macy's, Inc. (NYSE:M), Cemex SAB de CV (NYSE:CX), Arconic Inc. (NYSE:ARNC), and Steel Dynamics, Inc. (NASDAQ:STLD). All of these stocks' market caps match SRPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position M,29,573651,5 CX,13,158360,0 ARNC,40,3295207,7 STLD,28,571282,-1 Average,27.5,1149625,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.15 billion. That figure was $1.21 billion in SRPT's case. Arconic Inc. (NYSE:ARNC) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Sarepta Therapeutics Inc (NASDAQ:SRPT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.