Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Is Heron Therapeutics Inc (NASDAQ:HRTX) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Heron Therapeutics Inc (NASDAQ:HRTX) was in 19 hedge funds’ portfolios at the end of December. HRTX investors should pay attention to an increase in activity from the world’s largest hedge funds lately. There were 16 hedge funds in our database with HRTX holdings at the end of the previous quarter. Our calculations also showed that HRTX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Heron Therapeutics Inc (NASDAQ:HRTX).
How have hedgies been trading Heron Therapeutics Inc (NASDAQ:HRTX)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in HRTX a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Baker Bros. Advisors held the most valuable stake in Heron Therapeutics Inc (NASDAQ:HRTX), which was worth $141.4 million at the end of the third quarter. On the second spot was Tang Capital Management which amassed $117.9 million worth of shares. D E Shaw, Citadel Investment Group, and Bridger 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 Tang Capital Management allocated the biggest weight to Heron Therapeutics Inc (NASDAQ:HRTX), around 14.09% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, setting aside 2.92 percent of its 13F equity portfolio to HRTX.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Farallon Capital, established the most valuable position in Heron Therapeutics Inc (NASDAQ:HRTX). Farallon Capital had $20.6 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $5.9 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Noam Gottesman’s GLG Partners, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks similar to Heron Therapeutics Inc (NASDAQ:HRTX). These stocks are Aimmune Therapeutics Inc (NASDAQ:AIMT), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), Deluxe Corporation (NYSE:DLX), and AssetMark Financial Holdings, Inc. (NYSE:AMK). This group of stocks’ market caps are closest to HRTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIMT | 13 | 164507 | -7 |
| SAIL | 25 | 250134 | -1 |
| DLX | 29 | 162395 | 5 |
| AMK | 6 | 50409 | -4 |
| Average | 18.25 | 156861 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $497 million in HRTX’s case. Deluxe Corporation (NYSE:DLX) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 6 bullish hedge fund positions. Heron Therapeutics Inc (NASDAQ:HRTX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately HRTX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HRTX were disappointed as the stock returned -45.6% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
