Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) investors should pay attention to an increase in hedge fund interest lately. GLMD was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with GLMD holdings at the end of the previous quarter. Our calculations also showed that GLMD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 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 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.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the key hedge fund action encompassing Galmed Pharmaceuticals Ltd (NASDAQ:GLMD).
What does smart money think about Galmed Pharmaceuticals Ltd (NASDAQ:GLMD)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GLMD over the last 17 quarters. So, let’s see 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 Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), which was worth $8.8 million at the end of the third quarter. On the second spot was 683 Capital Partners which amassed $6.5 million worth of shares. Vivo Capital, Nantahala Capital Management, and Baker Bros. Advisors 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 Biotechnology Value Fund allocated the biggest weight to Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), around 0.92% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to GLMD.
Consequently, key money managers have jumped into Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the largest position in Galmed Pharmaceuticals Ltd (NASDAQ:GLMD). Marshall Wace had $0.1 million invested in the company at the end of the quarter. John Zaro’s Bourgeon Capital also made a $0 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) but similarly valued. These stocks are I.D. Systems, Inc. (NASDAQ:IDSY), Citizens Holding Company (NASDAQ:CIZN), Grindrod Shipping Holdings Ltd. (NASDAQ:GRIN), and TravelCenters of America LLC (NYSE:TA). All of these stocks’ market caps resemble GLMD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IDSY | 11 | 38014 | 2 |
| CIZN | 1 | 383 | 0 |
| GRIN | 1 | 6058 | 0 |
| TA | 7 | 11189 | 0 |
| Average | 5 | 13911 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $26 million in GLMD’s case. I.D. Systems, Inc. (NASDAQ:IDSY) is the most popular stock in this table. On the other hand Citizens Holding Company (NASDAQ:CIZN) is the least popular one with only 1 bullish hedge fund positions. Galmed Pharmaceuticals Ltd (NASDAQ:GLMD) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GLMD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GLMD were disappointed as the stock returned -5.9% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
