Did Hedge Funds Make The Right Call On Jazz Pharmaceuticals Plc (JAZZ)?

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 Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) and determine whether hedge funds skillfully traded this stock.

Is Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) the right pick for your portfolio? The smart money was in an optimistic mood. The number of bullish hedge fund bets inched up by 4 lately. Our calculations also showed that JAZZ 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.

Bruce Kovner of Caxton Associates LP

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. With all of this in mind we’re going to analyze the new hedge fund action regarding Jazz Pharmaceuticals Plc (NASDAQ:JAZZ).

What have hedge funds been doing with Jazz Pharmaceuticals Plc (NASDAQ:JAZZ)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the fourth quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in JAZZ a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), which was worth $343 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $234.8 million worth of shares. Sarissa Capital Management, Holocene Advisors, and GLG Partners 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 Sarissa Capital Management allocated the biggest weight to Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), around 9.73% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 5.03 percent of its 13F equity portfolio to JAZZ.

Now, some big names were breaking ground themselves. Rhenman & Partners Asset Management, managed by Henrik Rhenman, created the most outsized position in Jazz Pharmaceuticals Plc (NASDAQ:JAZZ). Rhenman & Partners Asset Management had $12 million invested in the company at the end of the quarter. Joe Riccardo’s Healthcare Value Capital also made a $3 million investment in the stock during the quarter. The following funds were also among the new JAZZ investors: Steve Cohen’s Point72 Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) but similarly valued. We will take a look at Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Gentex Corporation (NASDAQ:GNTX), UGI Corp (NYSE:UGI), and Genpact Limited (NYSE:G). This group of stocks’ market caps match JAZZ’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $805 million in JAZZ’s case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand UGI Corp (NYSE:UGI) is the least popular one with only 27 bullish hedge fund positions. Jazz Pharmaceuticals Plc (NASDAQ:JAZZ) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 and surpassed the market by 15.5 percentage points. Unfortunately JAZZ wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); JAZZ investors were disappointed as the stock returned 10.6% during the second 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.

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