Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Epizyme Inc (NASDAQ:EPZM).
Epizyme Inc (NASDAQ:EPZM) was in 18 hedge funds’ portfolios at the end of December. EPZM shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. There were 17 hedge funds in our database with EPZM positions at the end of the previous quarter. Our calculations also showed that EPZM 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).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
William Leland Edwards of Palo Alto Investors
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 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 take a peek at the latest hedge fund action surrounding Epizyme Inc (NASDAQ:EPZM).
What have hedge funds been doing with Epizyme Inc (NASDAQ:EPZM)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EPZM over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Redmile Group was the largest shareholder of Epizyme Inc (NASDAQ:EPZM), with a stake worth $215.2 million reported as of the end of September. Trailing Redmile Group was Palo Alto Investors, which amassed a stake valued at $151.2 million. Consonance Capital Management, Rock Springs Capital Management, and Opaleye 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 Burrage Capital Management allocated the biggest weight to Epizyme Inc (NASDAQ:EPZM), around 15.92% of its 13F portfolio. Foresite Capital is also relatively very bullish on the stock, dishing out 9.48 percent of its 13F equity portfolio to EPZM.
As aggregate interest increased, some big names have been driving this bullishness. Burrage Capital Management, managed by Christiana Goh Bardon, initiated the biggest position in Epizyme Inc (NASDAQ:EPZM). Burrage Capital Management had $23.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $4.6 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management, Nick Thakore’s Diametric Capital, and Joel Greenblatt’s Gotham Asset Management.
Let’s go over hedge fund activity in other stocks similar to Epizyme Inc (NASDAQ:EPZM). These stocks are Hertz Global Holdings, Inc. (NYSE:HTZ), Shake Shack Inc (NYSE:SHAK), PennyMac Mortgage Investment Trust (NYSE:PMT), and Verra Mobility Corporation (NASDAQ:VRRM). This group of stocks’ market values are closest to EPZM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTZ | 33 | 1387542 | 7 |
| SHAK | 25 | 343253 | -4 |
| PMT | 19 | 126885 | 4 |
| VRRM | 33 | 300381 | 17 |
| Average | 27.5 | 539515 | 6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $540 million. That figure was $611 million in EPZM’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand PennyMac Mortgage Investment Trust (NYSE:PMT) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Epizyme Inc (NASDAQ:EPZM) is even less popular than PMT. Hedge funds dodged a bullet by taking a bearish stance towards EPZM. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately EPZM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EPZM investors were disappointed as the stock returned -37.9% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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.
