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 Tricida, Inc. (NASDAQ:TCDA) and determine whether hedge funds skillfully traded this stock.
Hedge fund interest in Tricida, Inc. (NASDAQ:TCDA) 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 TCDA to other stocks including Kaiser Aluminum Corp. (NASDAQ:KALU), Rush Enterprises, Inc. (NASDAQ:RUSHB), and National HealthCare Corporation (NYSE:NHC) 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_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let's go over the new hedge fund action regarding Tricida, Inc. (NASDAQ:TCDA).
What have hedge funds been doing with Tricida, Inc. (NASDAQ:TCDA)?
At the end of the first quarter, a total of 24 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 TCDA over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, OrbiMed Advisors held the most valuable stake in Tricida, Inc. (NASDAQ:TCDA), which was worth $211.5 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $58.7 million worth of shares. Redmile Group, Avoro Capital Advisors (venBio Select Advisor), and Farallon Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position OrbiMed Advisors allocated the biggest weight to Tricida, Inc. (NASDAQ:TCDA), around 3.55% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, dishing out 2.74 percent of its 13F equity portfolio to TCDA.
Since Tricida, Inc. (NASDAQ:TCDA) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that decided to sell off their entire stakes in the first quarter. At the top of the heap, Jonathan Barrett and Paul Segal's Luminus Management sold off the largest position of all the hedgies watched by Insider Monkey, valued at about $5.3 million in stock. Michael Gelband's fund, ExodusPoint Capital, also sold off its stock, about $1.2 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Tricida, Inc. (NASDAQ:TCDA) but similarly valued. These stocks are Kaiser Aluminum Corp. (NASDAQ:KALU), Rush Enterprises, Inc. (NASDAQ:RUSHB), National HealthCare Corporation (NYSE:NHC), and Kontoor Brands, Inc. (NASDAQ:KTB). This group of stocks' market valuations resemble TCDA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KALU,16,75036,-1 RUSHB,3,27046,-1 NHC,11,55616,0 KTB,16,33264,2 Average,11.5,47741,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $462 million in TCDA's case. Kaiser Aluminum Corp. (NASDAQ:KALU) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Tricida, Inc. (NASDAQ:TCDA) 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 TCDA, though not to the same extent, as the stock returned 24.9% in Q2 and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.