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Were Hedge Funds Right About Ardelyx Inc (ARDX)?

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Ardelyx Inc (NASDAQ:ARDX).

Is Ardelyx Inc (NASDAQ:ARDX) a buy, sell, or hold? Prominent investors were taking a pessimistic view. The number of long hedge fund positions dropped by 3 lately. Ardelyx Inc (NASDAQ:ARDX) was in 17 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that ARDX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 20 hedge funds in our database with ARDX positions at the end of the fourth quarter.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Peter Kolchinsky of RA Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 look at the fresh hedge fund action surrounding Ardelyx Inc (NASDAQ:ARDX).

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

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ARDX a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Peter Kolchinsky's RA Capital Management has the number one position in Ardelyx Inc (NASDAQ:ARDX), worth close to $40.2 million, comprising 0.6% of its total 13F portfolio. On RA Capital Management's heels is Rock Springs Capital Management, led by Kris Jenner, Gordon Bussard, Graham McPhail, holding a $34.3 million position; 0.7% of its 13F portfolio is allocated to the company. Other peers that are bullish include Phill Gross and Robert Atchinson's Adage Capital Management, Jeremy Green's Redmile Group and Ari Zweiman's 683 Capital Partners. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Ardelyx Inc (NASDAQ:ARDX), around 5.35% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, dishing out 0.98 percent of its 13F equity portfolio to ARDX.

Due to the fact that Ardelyx Inc (NASDAQ:ARDX) has experienced falling interest from hedge fund managers, we can see that there was a specific group of hedge funds who sold off their positions entirely heading into Q2. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP cut the largest stake of the 750 funds tracked by Insider Monkey, worth about $21.3 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q2.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ardelyx Inc (NASDAQ:ARDX) but similarly valued. These stocks are Barings BDC, Inc. (NYSE:BBDC), Hovnanian Enterprises, Inc. (NYSE:HOV), Peoples Bancorp Inc. (NASDAQ:PEBO), Ryerson Holding Corporation (NYSE:RYI), Liquidity Services, Inc. (NASDAQ:LQDT), Comtech Telecommunications Corp. (NASDAQ:CMTL), and Thermon Group Holdings, Inc. (NYSE:THR). This group of stocks' market valuations are closest to ARDX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBDC,14,60269,-1 HOV,14,112557,2 PEBO,5,10483,0 RYI,12,28192,0 LQDT,8,58229,0 CMTL,10,55368,-3 THR,12,30366,1 Average,10.7,50781,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.7 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $193 million in ARDX's case. Barings BDC, Inc. (NYSE:BBDC) is the most popular stock in this table. On the other hand Peoples Bancorp Inc. (NASDAQ:PEBO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Ardelyx Inc (NASDAQ:ARDX) is more popular among hedge funds. Our overall hedge fund sentiment score for ARDX is 72.4. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Unfortunately ARDX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ARDX were disappointed as the stock returned -74.6% since the end of the first quarter (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.