Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) an exceptional investment today? The best stock pickers are taking an optimistic view. The number of long hedge fund positions increased by 11 recently. Our calculations also showed that ARWR 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. With all of this in mind let’s take a glance at the latest hedge fund action regarding Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR).
Hedge fund activity in Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR)
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 73% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ARWR over the last 18 quarters. 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, Renaissance Technologies held the most valuable stake in Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), which was worth $45.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $44 million worth of shares. Vivo Capital, Arrowstreet Capital, and GLG Partners 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 Vivo Capital allocated the biggest weight to Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), around 3.16% of its 13F portfolio. Ikarian Capital is also relatively very bullish on the stock, earmarking 1.03 percent of its 13F equity portfolio to ARWR.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR). Arrowstreet Capital had $29.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $5.3 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Principal Global Investors’s Columbus Circle Investors, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now review hedge fund activity in other stocks similar to Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR). These stocks are Nordstrom, Inc. (NYSE:JWN), Jabil Inc. (NYSE:JBL), Pegasystems Inc. (NASDAQ:PEGA), and Generac Holdings Inc. (NYSE:GNRC). This group of stocks’ market valuations are closest to ARWR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JWN | 30 | 159760 | 7 |
| JBL | 34 | 641843 | 0 |
| PEGA | 25 | 1051106 | -1 |
| GNRC | 32 | 369028 | -1 |
| Average | 30.25 | 555434 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $259 million in ARWR’s case. Jabil Inc. (NYSE:JBL) is the most popular stock in this table. On the other hand Pegasystems Inc. (NASDAQ:PEGA) is the least popular one with only 25 bullish hedge fund positions. Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ARWR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARWR investors were disappointed as the stock returned -65.7% during the same time period 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 most of these stocks already outperformed the market in Q1.
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.
