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Were Hedge Funds Right About Souring On Karyopharm Therapeutics Inc (KPTI)?

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Asma UL Husna
·6 min read
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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Karyopharm Therapeutics Inc (NASDAQ:KPTI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Karyopharm Therapeutics Inc (NASDAQ:KPTI) has experienced a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that KPTI 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

William Leland Edwards of Palo Alto Investors
William Leland Edwards of Palo Alto Investors

William Leland Edwards of Palo Alto Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to go over the latest hedge fund action regarding Karyopharm Therapeutics Inc (NASDAQ:KPTI).

Hedge fund activity in Karyopharm Therapeutics Inc (NASDAQ:KPTI)

At Q1's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KPTI over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Consonance Capital Management was the largest shareholder of Karyopharm Therapeutics Inc (NASDAQ:KPTI), with a stake worth $137.9 million reported as of the end of September. Trailing Consonance Capital Management was Avoro Capital Advisors (venBio Select Advisor), which amassed a stake valued at $134.5 million. Palo Alto Investors, Adage Capital Management, and D E Shaw 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 Consonance Capital Management allocated the biggest weight to Karyopharm Therapeutics Inc (NASDAQ:KPTI), around 10.27% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, earmarking 6.92 percent of its 13F equity portfolio to KPTI.

Because Karyopharm Therapeutics Inc (NASDAQ:KPTI) has faced bearish sentiment from hedge fund managers, it's easy to see that there exists a select few hedge funds that elected to cut their full holdings in the first quarter. Interestingly, Samuel Isaly's OrbiMed Advisors dumped the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising about $11.9 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $5.6 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the first quarter.

Let's go over hedge fund activity in other stocks similar to Karyopharm Therapeutics Inc (NASDAQ:KPTI). We will take a look at EVO Payments, Inc. (NASDAQ:EVOP), Minerals Technologies Inc (NYSE:MTX), Walker & Dunlop Inc. (NYSE:WD), and MACOM Technology Solutions Holdings Inc (NASDAQ:MTSI). This group of stocks' market values match KPTI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVOP,10,32684,-12 MTX,16,67403,2 WD,19,53136,-6 MTSI,16,153392,-2 Average,15.25,76654,-4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $617 million in KPTI's case. Walker & Dunlop Inc. (NYSE:WD) is the most popular stock in this table. On the other hand EVO Payments, Inc. (NASDAQ:EVOP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Karyopharm Therapeutics Inc (NASDAQ:KPTI) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately KPTI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KPTI were disappointed as the stock returned -7.1% since the end of the first 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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