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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Silk Road Medical, Inc. (NASDAQ:SILK) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in Silk Road Medical, Inc. (NASDAQ:SILK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SILK to other stocks including Getty Realty Corp. (NYSE:GTY), Mednax Inc. (NYSE:MD), and Akebia Therapeutics Inc (NASDAQ:AKBA) to get a better sense of its popularity.
Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
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James E. Flynn of Deerfield Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the key hedge fund action regarding Silk Road Medical, Inc. (NASDAQ:SILK).
How have hedgies been trading Silk Road Medical, Inc. (NASDAQ:SILK)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in SILK a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Silk Road Medical, Inc. (NASDAQ:SILK) was held by Deerfield Management, which reported holding $42.4 million worth of stock at the end of September. It was followed by Sectoral Asset Management with a $6.9 million position. Other investors bullish on the company included Perceptive Advisors, Rhenman & Partners Asset Management, and Parkman Healthcare Partners. In terms of the portfolio weights assigned to each position Parkman Healthcare Partners allocated the biggest weight to Silk Road Medical, Inc. (NASDAQ:SILK), around 1.97% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to SILK.
Seeing as Silk Road Medical, Inc. (NASDAQ:SILK) has witnessed declining sentiment from hedge fund managers, it's easy to see that there is a sect of money managers who were dropping their positions entirely by the end of the first quarter. At the top of the heap, Phill Gross and Robert Atchinson's Adage Capital Management dropped the largest investment of the "upper crust" of funds followed by Insider Monkey, valued at about $4 million in stock. Vishal Saluja and Pham Quang's fund, Endurant Capital Management, also said goodbye to its stock, about $2.1 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Silk Road Medical, Inc. (NASDAQ:SILK) but similarly valued. We will take a look at Getty Realty Corp. (NYSE:GTY), Mednax Inc. (NYSE:MD), Akebia Therapeutics Inc (NASDAQ:AKBA), and JELD-WEN Holding, Inc. (NYSE:JELD). This group of stocks' market values resemble SILK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTY,9,68153,0 MD,26,237754,-7 AKBA,18,340546,2 JELD,20,144013,-9 Average,18.25,197617,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $71 million in SILK's case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand Getty Realty Corp. (NYSE:GTY) is the least popular one with only 9 bullish hedge fund positions. Silk Road Medical, Inc. (NASDAQ:SILK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SILK as the stock returned 33.1% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.