Did Hedge Funds Make The Right Call On NovoCure Limited (NVCR) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtNovoCure Limited (NASDAQ:NVCR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

NovoCure Limited (NASDAQ:NVCR) was in 27 hedge funds’ portfolios at the end of March. NVCR has experienced an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with NVCR holdings at the end of the previous quarter. Our calculations also showed that NVCR 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.

If you’d ask most shareholders, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation at present, Our researchers choose to focus on the bigwigs of this club, about 850 funds. These hedge fund managers control the majority of all hedge funds’ total capital, and by keeping track of their finest picks, Insider Monkey has uncovered several investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Kolchinsky of RA Capital Management

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 take a gander at the recent hedge fund action encompassing NovoCure Limited (NASDAQ:NVCR).

Hedge fund activity in NovoCure Limited (NASDAQ:NVCR)

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in NVCR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of NovoCure Limited (NASDAQ:NVCR), with a stake worth $151.2 million reported as of the end of September. Trailing Renaissance Technologies was Darsana Capital Partners, which amassed a stake valued at $90.9 million. Two Sigma Advisors, Rhenman & Partners Asset Management, and RA Capital Management 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 Darsana Capital Partners allocated the biggest weight to NovoCure Limited (NASDAQ:NVCR), around 4.3% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, designating 3.4 percent of its 13F equity portfolio to NVCR.

As industrywide interest jumped, key hedge funds have jumped into NovoCure Limited (NASDAQ:NVCR) headfirst. Rhenman & Partners Asset Management, managed by Henrik Rhenman, established the most outsized position in NovoCure Limited (NASDAQ:NVCR). Rhenman & Partners Asset Management had $24.2 million invested in the company at the end of the quarter. Peter Kolchinsky’s RA Capital Management also made a $17.4 million investment in the stock during the quarter. The other funds with brand new NVCR positions are Greg Eisner’s Engineers Gate Manager, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s check out hedge fund activity in other stocks similar to NovoCure Limited (NASDAQ:NVCR). We will take a look at Royal Caribbean Cruises Ltd. (NYSE:RCL), Equitable Holdings, Inc. (NYSE:EQH), Dynatrace, Inc. (NYSE:DT), and Dr. Reddy’s Laboratories Limited (NYSE:RDY). All of these stocks’ market caps resemble NVCR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $372 million in NVCR’s case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 11 bullish hedge fund positions. NovoCure Limited (NASDAQ:NVCR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately NVCR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NVCR were disappointed as the stock returned -11.9% during the same time period 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 many of these stocks already outperformed the market so far this year.

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