We can judge whether ArQule, Inc. (NASDAQ:ARQL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
ArQule, Inc. (NASDAQ:ARQL) was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. ARQL investors should pay attention to a decrease in enthusiasm from smart money recently. There were 25 hedge funds in our database with ARQL holdings at the end of the previous quarter. Our calculations also showed that ARQL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Samuel Isaly of OrbiMed Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action encompassing ArQule, Inc. (NASDAQ:ARQL).
Hedge fund activity in ArQule, Inc. (NASDAQ:ARQL)
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in ARQL 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.
Among these funds, Nantahala Capital Management held the most valuable stake in ArQule, Inc. (NASDAQ:ARQL), which was worth $72.1 million at the end of the third quarter. On the second spot was Consonance Capital Management which amassed $28.8 million worth of shares. OrbiMed Advisors, Alkeon Capital Management, and Biotechnology Value Fund 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 Consonance Capital Management allocated the biggest weight to ArQule, Inc. (NASDAQ:ARQL), around 2.85% of its portfolio. Nantahala Capital Management is also relatively very bullish on the stock, setting aside 2.67 percent of its 13F equity portfolio to ARQL.
Because ArQule, Inc. (NASDAQ:ARQL) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies that slashed their positions entirely heading into Q4. Intriguingly, Oleg Nodelman’s EcoR1 Capital said goodbye to the largest investment of the 750 funds watched by Insider Monkey, valued at close to $14.3 million in stock. Efrem Kamen’s fund, Pura Vida Investments, also sold off its stock, about $7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to ArQule, Inc. (NASDAQ:ARQL). These stocks are Columbus McKinnon Corporation (NASDAQ:CMCO), TCG BDC, Inc. (NASDAQ:CGBD), Diebold Nixdorf Incorporated (NYSE:DBD), and 21Vianet Group Inc (NASDAQ:VNET). This group of stocks’ market caps match ARQL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMCO | 22 | 63804 | 2 |
| CGBD | 6 | 28979 | -2 |
| DBD | 17 | 165479 | 2 |
| VNET | 12 | 48229 | -5 |
| Average | 14.25 | 76623 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $219 million in ARQL’s case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand TCG BDC, Inc. (NASDAQ:CGBD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks ArQule, Inc. (NASDAQ:ARQL) is more popular among hedge funds. 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. Hedge funds were also right about betting on ARQL as the stock returned 33.8% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.
