Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) was in 23 hedge funds' portfolios at the end of the third quarter of 2018. SPPI has experienced an increase in support from the world's most elite money managers lately. There were 18 hedge funds in our database with SPPI holdings at the end of the previous quarter. Our calculations also showed that SPPI isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a gander at the latest hedge fund action encompassing Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).
What does the smart money think about Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)?
At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in SPPI heading into this year. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Consonance Capital Management held the most valuable stake in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), which was worth $97.9 million at the end of the third quarter. On the second spot was OrbiMed Advisors which amassed $38.1 million worth of shares. Moreover, Renaissance Technologies, Citadel Investment Group, and AQR Capital Management were also bullish on Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. OrbiMed Advisors, managed by Samuel Isaly, assembled the largest position in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). OrbiMed Advisors had $38.1 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $3.2 million investment in the stock during the quarter. The following funds were also among the new SPPI investors: Paul Marshall and Ian Wace's Marshall Wace LLP, Sander Gerber's Hudson Bay Capital Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). We will take a look at Talos Energy, Inc. (NYSE:TALO), Zogenix, Inc. (NASDAQ:ZGNX), Amkor Technology, Inc. (NASDAQ:AMKR), and Gazit Globe Ltd. (NYSE:GZT). This group of stocks' market caps are closest to SPPI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TALO,14,99864,2 ZGNX,37,1091823,6 AMKR,18,47926,5 GZT,4,15617,0 Average,18.25,313808,3.25 [/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 $314 million. That figure was $236 million in SPPI's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Gazit Globe Ltd. (NYSE:GZT) is the least popular one with only 4 bullish hedge fund positions. Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard ZGNX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.