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 (10 coronavirus predictions).
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 Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Reata Pharmaceuticals, Inc. (NASDAQ:RETA) investors should be aware of an increase in enthusiasm from smart money in recent months. RETA was in 29 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with RETA positions at the end of the previous quarter. Our calculations also showed that RETA 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 the average investor there are several formulas market participants can use to evaluate their holdings. A pair of the most useful formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform their index-focused peers by a healthy amount (see the details here).
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. Keeping this in mind we’re going to view the key hedge fund action surrounding Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
Hedge fund activity in Reata Pharmaceuticals, Inc. (NASDAQ:RETA)
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in RETA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Cormorant Asset Management was the largest shareholder of Reata Pharmaceuticals, Inc. (NASDAQ:RETA), with a stake worth $166.9 million reported as of the end of September. Trailing Cormorant Asset Management was Duquesne Capital, which amassed a stake valued at $87.2 million. Cormorant Asset Management, Renaissance Technologies, and Point72 Asset Management 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 Corriente Advisors allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 21.08% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, dishing out 6.66 percent of its 13F equity portfolio to RETA.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Reata Pharmaceuticals, Inc. (NASDAQ:RETA) headfirst. Renaissance Technologies, initiated the most outsized position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA). Renaissance Technologies had $49.5 million invested in the company at the end of the quarter. Mark Hart III’s Corriente Advisors also initiated a $39.3 million position during the quarter. The following funds were also among the new RETA investors: Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Brad Farber’s Atika Capital, and Arsani William’s Logos Capital.
Let’s check out hedge fund activity in other stocks similar to Reata Pharmaceuticals, Inc. (NASDAQ:RETA). These stocks are Dr. Reddy’s Laboratories Limited (NYSE:RDY), Americold Realty Trust (NYSE:COLD), New Residential Investment Corp (NYSE:NRZ), and Leggett & Platt, Inc. (NYSE:LEG). This group of stocks’ market valuations are closest to RETA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDY | 12 | 109916 | -1 |
| COLD | 26 | 360194 | -5 |
| NRZ | 23 | 129808 | 3 |
| LEG | 27 | 101609 | 15 |
| Average | 22 | 175382 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $651 million in RETA’s case. Leggett & Platt, Inc. (NYSE:LEG) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Reata Pharmaceuticals, Inc. (NASDAQ:RETA) 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately RETA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RETA were disappointed as the stock returned -36.4% during the first two and a half months of 2020 (through March 16th) 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.
