In this article we will check out the progression of hedge fund sentiment towards Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) 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 VNDA to other stocks including Meredith Corporation (NYSE:MDP), CEVA, Inc. (NASDAQ:CEVA), and Harmonic Inc (NASDAQ:HLIT) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_315176" align="aligncenter" width="400"] Michael Castor of Sio Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to check out the fresh hedge fund action surrounding Vanda Pharmaceuticals Inc. (NASDAQ:VNDA).
Hedge fund activity in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA)
At Q1's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VNDA over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Armistice Capital, managed by Steven Boyd, holds the biggest position in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). Armistice Capital has a $47.3 million position in the stock, comprising 2.9% of its 13F portfolio. The second most bullish fund manager is Palo Alto Investors, managed by William Leland Edwards, which holds a $42.8 million position; 3.6% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include Renaissance Technologies, Michael Castor's Sio Capital and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), around 3.59% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, designating 2.93 percent of its 13F equity portfolio to VNDA.
Due to the fact that Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes heading into Q4. It's worth mentioning that Minhua Zhang's Weld Capital Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $0.4 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.4 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 also examine hedge fund activity in other stocks similar to Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). These stocks are Meredith Corporation (NYSE:MDP), CEVA, Inc. (NASDAQ:CEVA), Harmonic Inc (NASDAQ:HLIT), and Ultra Clean Holdings Inc (NASDAQ:UCTT). All of these stocks' market caps are closest to VNDA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDP,16,81509,-2 CEVA,11,26258,-2 HLIT,16,60587,-3 UCTT,24,74439,5 Average,16.75,60698,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $179 million in VNDA's case. Ultra Clean Holdings Inc (NASDAQ:UCTT) is the most popular stock in this table. On the other hand CEVA, Inc. (NASDAQ:CEVA) is the least popular one with only 11 bullish hedge fund positions. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) 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. 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 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately VNDA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VNDA were disappointed as the stock returned 9.2% during the same time period 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.