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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD).
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. IRWD was in 28 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with IRWD holdings at the end of the previous quarter. Our calculations also showed that IRWD 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).
To most stock holders, hedge funds are seen as slow, old investment tools of years past. While there are more than 8000 funds trading at the moment, Our experts hone in on the leaders of this group, around 850 funds. These investment experts command the majority of the hedge fund industry’s total capital, and by tailing their matchless picks, Insider Monkey has unsheathed several investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Alex Denner of Sarissa Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s analyze the latest hedge fund action surrounding Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD).
What have hedge funds been doing with Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)?
Heading into the first quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in IRWD over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) was held by Sarissa Capital Management, which reported holding $137.2 million worth of stock at the end of September. It was followed by MFN Partners with a $85.7 million position. Other investors bullish on the company included EcoR1 Capital, D E Shaw, and Adage Capital Management. In terms of the portfolio weights assigned to each position MFN Partners allocated the biggest weight to Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), around 17.66% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, earmarking 11.39 percent of its 13F equity portfolio to IRWD.
As one would reasonably expect, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). Arrowstreet Capital had $6.4 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Bruce Kovner’s Caxton Associates LP, and Jinghua Yan’s TwinBeech Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) but similarly valued. We will take a look at Cal-Maine Foods Inc (NASDAQ:CALM), SPX FLOW, Inc. (NASDAQ:FLOW), Baozun Inc (NASDAQ:BZUN), and Corrections Corp Of America (NYSE:CXW). This group of stocks’ market values match IRWD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CALM | 15 | 172532 | -6 |
| FLOW | 16 | 212749 | 4 |
| BZUN | 15 | 44965 | -2 |
| CXW | 25 | 199275 | 6 |
| Average | 17.75 | 157380 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $417 million in IRWD’s case. Corrections Corp Of America (NYSE:CXW) is the most popular stock in this table. On the other hand Cal-Maine Foods Inc (NASDAQ:CALM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) 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 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately IRWD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IRWD were disappointed as the stock returned -24.3% during the three months of 2020 (through April 6th) 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 2020.
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.
