Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Forward Pharma A/S (NASDAQ:FWP) 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 FWP to other stocks including Remark Holdings, Inc. (NASDAQ:MARK), Soleno Therapeutics, Inc. (NASDAQ:SLNO), and Mid-Southern Bancorp, Inc. (NASDAQ:MSVB) to get a better sense of its popularity.
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing Forward Pharma A/S (NASDAQ:FWP).
What have hedge funds been doing with Forward Pharma A/S (NASDAQ:FWP)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in FWP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Biotechnology Value Fund held the most valuable stake in Forward Pharma A/S (NASDAQ:FWP), which was worth $6.6 million at the end of the third quarter. On the second spot was Newtyn Management which amassed $3.3 million worth of shares. Citadel Investment Group was 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 Biotechnology Value Fund allocated the biggest weight to Forward Pharma A/S (NASDAQ:FWP), around 0.69% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, earmarking 0.31 percent of its 13F equity portfolio to FWP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now review hedge fund activity in other stocks similar to Forward Pharma A/S (NASDAQ:FWP). We will take a look at Remark Holdings, Inc. (NASDAQ:MARK), Soleno Therapeutics, Inc. (NASDAQ:SLNO), Mid-Southern Bancorp, Inc. (NASDAQ:MSVB), and PFSweb, Inc. (NASDAQ:PFSW). This group of stocks’ market valuations is similar to FWP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MARK | 3 | 2964 | 1 |
| SLNO | 5 | 8308 | 0 |
| MSVB | 5 | 5584 | 0 |
| PFSW | 6 | 5448 | 1 |
| Average | 4.75 | 5576 | 0.5 |
View the table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $10 million in FWP’s case. PFSweb, Inc. (NASDAQ:PFSW) is the most popular stock in this table. On the other hand Remark Holdings, Inc. (NASDAQ:MARK) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Forward Pharma A/S (NASDAQ:FWP) is even less popular than MARK. Hedge funds dodged a bullet by taking a bearish stance towards FWP. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately, FWP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FWP investors were disappointed as the stock returned -19.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
