Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Scholar Rock Holding Corporation (NASDAQ:SRRK).
Is Scholar Rock Holding Corporation (NASDAQ:SRRK) ready to rally soon? Investors who are in the know are becoming less confident. The number of bullish hedge fund bets fell by 1 in recent months. Our calculations also showed that SRRK 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.
At the moment there are tons of gauges stock traders put to use to appraise stocks. A duo of the best gauges are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the market by a very impressive amount (see the details here).
Louis Bacon Moore of Moore Capital
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 gander at the new hedge fund action encompassing Scholar Rock Holding Corporation (NASDAQ:SRRK).
How have hedgies been trading Scholar Rock Holding Corporation (NASDAQ:SRRK)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SRRK over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jeremy Green’s Redmile Group has the biggest position in Scholar Rock Holding Corporation (NASDAQ:SRRK), worth close to $25.6 million, corresponding to 0.9% of its total 13F portfolio. On Redmile Group’s heels is Cormorant Asset Management, managed by Bihua Chen, which holds a $1.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions include Paul Marshall and Ian Wace’s Marshall Wace, Louis Bacon’s Moore Global Investments and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Scholar Rock Holding Corporation (NASDAQ:SRRK), around 0.86% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to SRRK.
Because Scholar Rock Holding Corporation (NASDAQ:SRRK) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers that elected to cut their full holdings last quarter. Interestingly, Anand Parekh’s Alyeska Investment Group sold off the biggest stake of the 750 funds watched by Insider Monkey, valued at an estimated $1.9 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund said goodbye to about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Scholar Rock Holding Corporation (NASDAQ:SRRK). We will take a look at Covia Holdings Corporation (NYSE:CVIA), Avid Technology, Inc. (NASDAQ:AVID), Leju Holdings Limited (NYSE:LEJU), and Xeris Pharmaceuticals, Inc. (NASDAQ:XERS). This group of stocks’ market valuations resemble SRRK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVIA | 8 | 15347 | 1 |
| AVID | 13 | 39069 | 0 |
| LEJU | 1 | 2529 | -1 |
| XERS | 4 | 53600 | -1 |
| Average | 6.5 | 27636 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $29 million in SRRK’s case. Avid Technology, Inc. (NASDAQ:AVID) is the most popular stock in this table. On the other hand Leju Holdings Limited (NYSE:LEJU) is the least popular one with only 1 bullish hedge fund positions. Scholar Rock Holding Corporation (NASDAQ:SRRK) 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 SRRK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SRRK were disappointed as the stock returned -4.9% 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.
