Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Corcept Therapeutics Incorporated (NASDAQ:CORT).
Is Corcept Therapeutics Incorporated (NASDAQ:CORT) undervalued? The smart money is buying. The number of long hedge fund positions improved by 1 recently. Our calculations also showed that CORT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CORT was in 18 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with CORT positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
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. We’re going to take a look at the new hedge fund action regarding Corcept Therapeutics Incorporated (NASDAQ:CORT).
What does smart money think about Corcept Therapeutics Incorporated (NASDAQ:CORT)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in CORT a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Corcept Therapeutics Incorporated (NASDAQ:CORT), with a stake worth $92.2 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $10.1 million. Citadel Investment Group, D E Shaw, and Marshall Wace 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 Birchview Capital allocated the biggest weight to Corcept Therapeutics Incorporated (NASDAQ:CORT), around 0.47% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.39 percent of its 13F equity portfolio to CORT.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, established the largest position in Corcept Therapeutics Incorporated (NASDAQ:CORT). Paloma Partners had $0.3 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Michael Gelband’s ExodusPoint Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Corcept Therapeutics Incorporated (NASDAQ:CORT) but similarly valued. These stocks are Newmark Group, Inc. (NASDAQ:NMRK), NBT Bancorp Inc. (NASDAQ:NBTB), IAMGOLD Corporation (NYSE:IAG), and Redwood Trust, Inc. (NYSE:RWT). All of these stocks’ market caps resemble CORT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NMRK | 19 | 111199 | 3 |
| NBTB | 6 | 7606 | -2 |
| IAG | 13 | 148737 | -2 |
| RWT | 15 | 119122 | 2 |
| Average | 13.25 | 96666 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $135 million in CORT’s case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 6 bullish hedge fund positions. Corcept Therapeutics Incorporated (NASDAQ:CORT) 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 CORT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CORT were disappointed as the stock returned -9.3% 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.
