We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Halozyme Therapeutics, Inc. (NASDAQ:HALO) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Halozyme Therapeutics, Inc. (NASDAQ:HALO) has experienced a decrease in support from the world’s most elite money managers recently. HALO was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with HALO positions at the end of the previous quarter. Our calculations also showed that HALO 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 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 S&P 500 ETFs by 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 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.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s go over the latest hedge fund action surrounding Halozyme Therapeutics, Inc. (NASDAQ:HALO).
Hedge fund activity in Halozyme Therapeutics, Inc. (NASDAQ:HALO)
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HALO over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Halozyme Therapeutics, Inc. (NASDAQ:HALO) was held by D E Shaw, which reported holding $36.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $21.6 million position. Other investors bullish on the company included Fisher Asset Management, Adage Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to Halozyme Therapeutics, Inc. (NASDAQ:HALO), around 1.02% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, setting aside 0.84 percent of its 13F equity portfolio to HALO.
Because Halozyme Therapeutics, Inc. (NASDAQ:HALO) has experienced a decline in interest from hedge fund managers, logic holds that there is a sect of hedge funds that elected to cut their entire stakes last quarter. Intriguingly, Julian Baker and Felix Baker’s Baker Bros. Advisors sold off the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $4.7 million in call options. Sander Gerber’s fund, Hudson Bay Capital Management, also said goodbye to its call options, about $1.6 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Halozyme Therapeutics, Inc. (NASDAQ:HALO) but similarly valued. These stocks are Altera Corporation (NASDAQ:ALTR), Applied Industrial Technologies (NYSE:AIT), Cactus, Inc. (NYSE:WHD), and Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB). This group of stocks’ market values resemble HALO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALTR | 10 | 212059 | -2 |
| AIT | 22 | 115713 | 0 |
| WHD | 17 | 141028 | -2 |
| OMAB | 6 | 67651 | -1 |
| Average | 13.75 | 134113 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $198 million in HALO’s case. Applied Industrial Technologies (NYSE:AIT) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Centro Nort (NASDAQ:OMAB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Halozyme Therapeutics, Inc. (NASDAQ:HALO) is more popular among hedge funds. 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 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on HALO as the stock returned -4.4% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
