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Were Hedge Funds Right About Dumping ProQR Therapeutics NV (PRQR)?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like ProQR Therapeutics NV (NASDAQ:PRQR).

ProQR Therapeutics NV (NASDAQ:PRQR) shareholders have witnessed a decrease in support from the world's most elite money managers of late. PRQR was in 9 hedge funds' portfolios at the end of June. There were 10 hedge funds in our database with PRQR positions at the end of the previous quarter. Our calculations also showed that PRQR isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sahm Adrangi Kerrisdale Capital

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We're going to go over the key hedge fund action surrounding ProQR Therapeutics NV (NASDAQ:PRQR).

What does smart money think about ProQR Therapeutics NV (NASDAQ:PRQR)?

Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in PRQR 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.

No of Hedge Funds with PRQR Positions

More specifically, Adage Capital Management was the largest shareholder of ProQR Therapeutics NV (NASDAQ:PRQR), with a stake worth $34 million reported as of the end of March. Trailing Adage Capital Management was OrbiMed Advisors, which amassed a stake valued at $12.6 million. Aquilo Capital Management, Kerrisdale Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Because ProQR Therapeutics NV (NASDAQ:PRQR) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of funds that slashed their entire stakes heading into Q3. Interestingly, Joseph Edelman's Perceptive Advisors dropped the largest position of the 750 funds monitored by Insider Monkey, valued at close to $10 million in stock. Marc Schneidman's fund, Aquilo Capital Management, also said goodbye to its stock, about $6.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as ProQR Therapeutics NV (NASDAQ:PRQR) but similarly valued. These stocks are HCI Group, Inc. (NYSE:HCI), J.C. Penney Company, Inc. (NYSE:JCP), Haverty Furniture Companies, Inc. (NYSE:HVT), and Ciner Resources LP (NYSE:CINR). This group of stocks' market valuations match PRQR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HCI,11,20029,2 JCP,12,33842,-1 HVT,9,53997,-2 CINR,1,5332,0 Average,8.25,28300,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $65 million in PRQR's case. J.C. Penney Company, Inc. (NYSE:JCP) is the most popular stock in this table. On the other hand Ciner Resources LP (NYSE:CINR) is the least popular one with only 1 bullish hedge fund positions. ProQR Therapeutics NV (NASDAQ:PRQR) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRQR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PRQR were disappointed as the stock returned -36.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.

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