Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) worth your attention right now? Investors who are in the know are turning less bullish. The number of bullish hedge fund bets went down by 4 recently. Our calculations also showed that BHVN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to view the new hedge fund action encompassing Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).
How have hedgies been trading Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in BHVN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the most valuable position in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), worth close to $65.7 million, amounting to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Cormorant Asset Management, led by Bihua Chen, holding a $53.5 million position; 3.3% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism comprise Mark Kingdon’s Kingdon Capital, Ken Griffin’s Citadel Investment Group and Fred Knoll’s Knoll Capital Management. In terms of the portfolio weights assigned to each position Knoll Capital Management allocated the biggest weight to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), around 32.74% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, designating 6.21 percent of its 13F equity portfolio to BHVN.
Because Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) has experienced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, Jeffrey Jay and David Kroin’s Great Point Partners said goodbye to the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $15.3 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund dumped about $12.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). We will take a look at PQ Group Holdings Inc. (NYSE:PQG), PriceSmart, Inc. (NASDAQ:PSMT), Northwest Natural Gas Co (NYSE:NWN), and Tenable Holdings, Inc. (NASDAQ:TENB). This group of stocks’ market valuations match BHVN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PQG | 7 | 55742 | 1 |
| PSMT | 9 | 50814 | -6 |
| NWN | 16 | 63875 | 4 |
| TENB | 18 | 135666 | 1 |
| Average | 12.5 | 76524 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $456 million in BHVN’s case. Tenable Holdings, Inc. (NASDAQ:TENB) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on BHVN as the stock returned 46.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
