Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX).
BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) investors should pay attention to an increase in hedge fund sentiment in recent months. BCRX was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with BCRX positions at the end of the previous quarter. Our calculations also showed that BCRX 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Felix Baker of Baker Bros.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action surrounding BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX).
Hedge fund activity in BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX)
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BCRX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the largest position in BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX). Baker Bros. Advisors has a $36.5 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $22.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Ken Griffin’s Citadel Investment Group, Steve Cohen’s Point72 Asset Management and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Ghost Tree Capital allocated the biggest weight to BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), around 1.09% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, designating 0.59 percent of its 13F equity portfolio to BCRX.
As aggregate interest increased, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, created the largest position in BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX). Point72 Asset Management had $9.3 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeremy Green’s Redmile Group and Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) but similarly valued. These stocks are Corbus Pharmaceuticals Holdings Inc (NASDAQ:CRBP), North American Energy Partners Inc.(USA) (NYSE:NOA), Akazoo S.A. (NASDAQ:SONG), and Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL). This group of stocks’ market values are closest to BCRX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRBP | 7 | 30293 | -1 |
| NOA | 10 | 47482 | 1 |
| SONG | 4 | 5292 | -2 |
| RIGL | 16 | 59317 | 2 |
| Average | 9.25 | 35596 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $103 million in BCRX’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Akazoo S.A. (NASDAQ:SONG) is the least popular one with only 4 bullish hedge fund positions. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) 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 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. Unfortunately BCRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BCRX were disappointed as the stock returned -0.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
