We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Epizyme Inc (NASDAQ:EPZM) and determine whether hedge funds skillfully traded this stock.
Epizyme Inc (NASDAQ:EPZM) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. EPZM has seen an increase in enthusiasm from smart money recently. There were 22 hedge funds in our database with EPZM positions at the end of the first quarter. Our calculations also showed that EPZM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Tananbaum of Foresite 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 to get excerpts of these letters in your inbox. Now we’re going to review the key hedge fund action encompassing Epizyme Inc (NASDAQ:EPZM).
Hedge fund activity in Epizyme Inc (NASDAQ:EPZM)
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the first quarter of 2020. On the other hand, there were a total of 21 hedge funds with a bullish position in EPZM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Epizyme Inc (NASDAQ:EPZM) was held by Redmile Group, which reported holding $136.3 million worth of stock at the end of September. It was followed by Palo Alto Investors with a $88.6 million position. Other investors bullish on the company included Rock Springs Capital Management, Foresite Capital, and Burrage Capital Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Epizyme Inc (NASDAQ:EPZM), around 14.26% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, setting aside 10.02 percent of its 13F equity portfolio to EPZM.
Consequently, key money managers were breaking ground themselves. Greenspring Associates, managed by C. Ashton Newhall and James Lim, established the most outsized position in Epizyme Inc (NASDAQ:EPZM). Greenspring Associates had $3.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $1.8 million position during the quarter. The following funds were also among the new EPZM investors: John Overdeck and David Siegel’s Two Sigma Advisors, Jeffrey Diehl’s Adams Street Partners, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks similar to Epizyme Inc (NASDAQ:EPZM). We will take a look at Eldorado Gold Corp (NYSE:EGO), Sogou Inc. (NYSE:SOGO), JELD-WEN Holding, Inc. (NYSE:JELD), CNX Resources Corporation (NYSE:CNX), Adtalem Global Education Inc. (NYSE:ATGE), Columbia Financial, Inc. (NASDAQ:CLBK), and Minerals Technologies Inc (NYSE:MTX). This group of stocks’ market valuations resemble EPZM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EGO | 12 | 224197 | -2 |
| SOGO | 5 | 15881 | -1 |
| JELD | 15 | 193669 | -5 |
| CNX | 28 | 495530 | 4 |
| ATGE | 22 | 317607 | 10 |
| CLBK | 10 | 37574 | 0 |
| MTX | 17 | 99685 | 1 |
| Average | 15.6 | 197735 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.6 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $317 million in EPZM’s case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 5 bullish hedge fund positions. Epizyme Inc (NASDAQ:EPZM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EPZM is 75.1. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately EPZM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EPZM were disappointed as the stock returned -25.7% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
