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Were Hedge Funds Right About Piling Into Marinus Pharmaceuticals Inc (MRNS)?

Abigail Fisher

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Marinus Pharmaceuticals Inc (NASDAQ:MRNS) and determine whether hedge funds skillfully traded this stock.

Marinus Pharmaceuticals Inc (NASDAQ:MRNS) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that MRNS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_736153" align="aligncenter" width="398"] Didric Cederholm of Lion Point Capital[/caption]

Didric Cederholm Lion Point Capital
Didric Cederholm Lion Point Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to review the recent hedge fund action surrounding Marinus Pharmaceuticals Inc (NASDAQ:MRNS).

What have hedge funds been doing with Marinus Pharmaceuticals Inc (NASDAQ:MRNS)?

At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRNS over the last 18 quarters. So, let's review 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, Didric Cederholm's Lion Point has the number one position in Marinus Pharmaceuticals Inc (NASDAQ:MRNS), worth close to $12.9 million, amounting to 3.4% of its total 13F portfolio. The second most bullish fund manager is Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, which holds a $12.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Phill Gross and Robert Atchinson's Adage Capital Management, Anand Parekh's Alyeska Investment Group and Warren Lammert's Granite Point Capital. In terms of the portfolio weights assigned to each position Lion Point allocated the biggest weight to Marinus Pharmaceuticals Inc (NASDAQ:MRNS), around 3.41% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, earmarking 2.17 percent of its 13F equity portfolio to MRNS.

Judging by the fact that Marinus Pharmaceuticals Inc (NASDAQ:MRNS) has experienced a decline in interest from the smart money, logic holds that there were a few money managers who were dropping their full holdings by the end of the first quarter. It's worth mentioning that Israel Englander's Millennium Management said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $0.1 million in stock. Michael Gelband's fund, ExodusPoint Capital, also dropped its stock, about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Marinus Pharmaceuticals Inc (NASDAQ:MRNS) but similarly valued. These stocks are Western New England Bancorp, Inc. (NASDAQ:WNEB), Penns Woods Bancorp, Inc. (NASDAQ:PWOD), First Choice Bancorp (NASDAQ:FCBP), and Gladstone Capital Corporation (NASDAQ:GLAD). This group of stocks' market valuations are closest to MRNS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WNEB,5,16705,-1 PWOD,1,4410,0 FCBP,1,761,0 GLAD,4,3731,-3 Average,2.75,6402,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $53 million in MRNS's case. Western New England Bancorp, Inc. (NASDAQ:WNEB) is the most popular stock in this table. On the other hand Penns Woods Bancorp, Inc. (NASDAQ:PWOD) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Marinus Pharmaceuticals Inc (NASDAQ:MRNS) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MRNS, though not to the same extent, as the stock returned 25.1% in Q2 and outperformed the market as well.

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

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