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Was The Smart Money Right About Vertex Pharmaceuticals (VRTX)?

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) based on those filings.

Is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) the right investment to pursue these days? The smart money was becoming less confident. The number of bullish hedge fund bets fell by 2 recently. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 53 hedge funds' portfolios at the end of December. The all time high for this statistic is 56. Our calculations also showed that VRTX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Litowitz Magnetar Capital
Alex Litowitz Magnetar Capital

Alec Litowitz of Magnetar Capital

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 glance at the key hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

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

At the end of December, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VRTX over the last 22 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), with a stake worth $845.1 million reported as of the end of December. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $349.4 million. GLG Partners, D E Shaw, and OrbiMed Advisors 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 Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 11.36% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 5.32 percent of its 13F equity portfolio to VRTX.

Due to the fact that Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who were dropping their entire stakes heading into Q1. Intriguingly, Rajiv Jain's GQG Partners sold off the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $377.4 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund said goodbye to about $20.1 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds heading into Q1.

Let's go over hedge fund activity in other stocks similar to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). These stocks are Dominion Energy Inc. (NYSE:D), Air Products & Chemicals, Inc. (NYSE:APD), Norfolk Southern Corp. (NYSE:NSC), Spotify Technology S.A. (NYSE:SPOT), General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), and VMware, Inc. (NYSE:VMW). This group of stocks' market caps resemble VRTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position D,47,1506824,10 APD,50,1282433,1 NSC,44,783686,-3 SPOT,48,2688846,4 GM,70,6332871,10 MMC,43,1747012,8 VMW,35,405815,4 Average,48.1,2106784,4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.1 hedge funds with bullish positions and the average amount invested in these stocks was $2107 million. That figure was $3109 million in VRTX's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 35 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 57.1. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately VRTX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VRTX were disappointed as the stock returned -7.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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