As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Vanda Pharmaceuticals Inc. (NASDAQ:VNDA).
Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Universal Electronics Inc (NASDAQ:UEIC), Retail Value Inc. (NYSE:RVI), and Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) to gather more data points. Our calculations also showed that VNDA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the recent hedge fund action regarding Vanda Pharmaceuticals Inc. (NASDAQ:VNDA).
What does smart money think about Vanda Pharmaceuticals Inc. (NASDAQ:VNDA)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in VNDA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Palo Alto Investors, managed by William Leland Edwards, holds the biggest position in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). Palo Alto Investors has a $60.8 million position in the stock, comprising 4.1% of its 13F portfolio. On Palo Alto Investors's heels is Armistice Capital, managed by Steven Boyd, which holds a $47.1 million position; 3.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish include Renaissance Technologies, Israel Englander's Millennium Management and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), around 4.05% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, earmarking 3.12 percent of its 13F equity portfolio to VNDA.
Since Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of money managers that decided to sell off their entire stakes in the third quarter. Intriguingly, Mitchell Blutt's Consonance Capital Management dumped the largest stake of all the hedgies followed by Insider Monkey, valued at about $51.1 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund cut about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). These stocks are Universal Electronics Inc (NASDAQ:UEIC), Retail Value Inc. (NYSE:RVI), Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), and Enova International Inc (NYSE:ENVA). This group of stocks' market values are closest to VNDA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UEIC,12,30699,-1 RVI,16,199915,-1 LTRPA,25,199428,4 ENVA,20,131728,0 Average,18.25,140443,0.5 [/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 $140 million. That figure was $188 million in VNDA's case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand Universal Electronics Inc (NASDAQ:UEIC) is the least popular one with only 12 bullish hedge fund positions. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on VNDA as the stock returned 26% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.