At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Scholar Rock Holding Corporation (NASDAQ:SRRK).
Is Scholar Rock Holding Corporation (NASDAQ:SRRK) an outstanding investment right now? The best stock pickers were in a bearish mood. The number of bullish hedge fund bets fell by 1 in recent months. Scholar Rock Holding Corporation (NASDAQ:SRRK) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. Our calculations also showed that SRRK isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Louis Bacon Moore of Moore Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Scholar Rock Holding Corporation (NASDAQ:SRRK).
How are hedge funds trading Scholar Rock Holding Corporation (NASDAQ:SRRK)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SRRK over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Redmile Group, managed by Jeremy Green, holds the biggest position in Scholar Rock Holding Corporation (NASDAQ:SRRK). Redmile Group has a $51.3 million position in the stock, comprising 0.9% of its 13F portfolio. On Redmile Group’s heels is Moore Global Investments, managed by Louis Bacon, which holds a $1.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers that are bullish contain Ken Griffin’s Citadel Investment Group, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Scholar Rock Holding Corporation (NASDAQ:SRRK), around 0.94% of its 13F portfolio. Moore Global Investments is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to SRRK.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SRRK as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Scholar Rock Holding Corporation (NASDAQ:SRRK) but similarly valued. These stocks are Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), Hycroft Mining Holding Corporation (NASDAQ:HYMC), Radius Health Inc (NASDAQ:RDUS), Yintech Investment Holdings Limited (NASDAQ:YIN), Mitek Systems, Inc. (NASDAQ:MITK), Universal Electronics Inc (NASDAQ:UEIC), and Aptose Biosciences Inc (NASDAQ:APTO). This group of stocks’ market values are similar to SRRK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNDA | 22 | 170926 | 3 |
| HYMC | 13 | 353809 | 6 |
| RDUS | 22 | 124511 | 1 |
| YIN | 3 | 998 | 2 |
| MITK | 20 | 88835 | 1 |
| UEIC | 10 | 18576 | -1 |
| APTO | 21 | 200892 | 3 |
| Average | 15.9 | 136935 | 2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was $56 million in SRRK’s case. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 3 bullish hedge fund positions. Scholar Rock Holding Corporation (NASDAQ:SRRK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SRRK is 21.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on SRRK as the stock returned 165.2% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
Follow Scholar Rock Holding Corp (NASDAQ:SRRK)
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Disclosure: None. This article was originally published at Insider Monkey.
