The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) based on those filings.
Hedge fund interest in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Focus Financial Partners Inc. (NASDAQ:FOCS), WestAmerica Bancorp. (NASDAQ:WABC), and Studio City International Holdings Limited (NYSE:MSC) to gather more data points. Our calculations also showed that IRWD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.
Alex Denner of Sarissa Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the fresh hedge fund action surrounding Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD).
How are hedge funds trading Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)?
Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IRWD over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sarissa Capital Management was the largest shareholder of Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), with a stake worth $136.5 million reported as of the end of September. Trailing Sarissa Capital Management was EcoR1 Capital, which amassed a stake valued at $44.3 million. MFN Partners, D E Shaw, and Bridger 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 Sarissa Capital Management allocated the biggest weight to Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), around 17.41% of its 13F portfolio. EcoR1 Capital is also relatively very bullish on the stock, setting aside 4.63 percent of its 13F equity portfolio to IRWD.
Judging by the fact that Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of hedge funds that decided to sell off their full holdings last quarter. Interestingly, Andre F. Perold’s HighVista Strategies sold off the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $2.9 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). We will take a look at Focus Financial Partners Inc. (NASDAQ:FOCS), WestAmerica Bancorp. (NASDAQ:WABC), Studio City International Holdings Limited (NYSE:MSC), and Apache Corporation (NYSE:APA). All of these stocks’ market caps resemble IRWD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FOCS | 7 | 34941 | -5 |
| WABC | 8 | 8181 | -3 |
| MSC | 3 | 244275 | -1 |
| APA | 35 | 142310 | 1 |
| Average | 13.25 | 107427 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $335 million in IRWD’s case. Apache Corporation (NYSE:APA) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 3 bullish hedge fund positions. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately IRWD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IRWD were disappointed as the stock returned -3.6% 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 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.
