Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Flexion Therapeutics Inc (NASDAQ:FLXN).
Flexion Therapeutics has registered a slight increase in popularity among the funds we follow, although most investors are still overlooking the stock. Overall, FLXN was in 10 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article we will also compare FLXN to other stocks, including Western Asset High Yield Defined Opportunity Fund Inc. (NYSE:HYI), Lionbridge Technologies, Inc. (NASDAQ:LIOX), and Sorrentto Therapeutics Inc (NASDAQ:SRNE) to get a better sense of its popularity.
Follow Flexion Therapeutics Inc (NASDAQ:FLXN)
Follow Flexion Therapeutics Inc (NASDAQ:FLXN)
If you’d ask most shareholders, hedge funds are perceived as underperforming, old investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, We look at the crème de la crème of this club, around 700 funds. These hedge fund managers direct the majority of the smart money’s total asset base, and by tailing their inimitable picks, Insider Monkey has discovered a number of investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per year for a decade in their back tests.
Keeping this in mind, let’s check out the key action surrounding Flexion Therapeutics Inc (NASDAQ:FLXN).
How are hedge funds trading Flexion Therapeutics Inc (NASDAQ:FLXN)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 25% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mark Kingdon’s Kingdon Capital has the number one position in Flexion Therapeutics Inc (NASDAQ:FLXN), worth close to $12.4 million, accounting for 0.6% of its total 13F portfolio. The second largest stake is held by Driehaus Capital, led by Richard Driehaus, holding a $11.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers that are bullish include Kevin Kotler’s Broadfin Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Jacob Gottlieb’s Visium Asset Management.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Driehaus Capital created the largest position in Flexion Therapeutics Inc (NASDAQ:FLXN). Marshall Wace LLP also initiated a $2 million position during the quarter. The other funds with brand new FLXN positions are Simon Sadler’s Segantii Capital, Jeffrey Jay and David Kroin’s Great Point Partners, and D. E. Shaw’s D E Shaw.
Let’s now take a look at hedge fund activity in other stocks similar to Flexion Therapeutics Inc (NASDAQ:FLXN). These stocks are Western Asset High Yield Defined Opportunity Fund Inc. (NYSE:HYI), Lionbridge Technologies, Inc. (NASDAQ:LIOX), Sorrentto Therapeutics Inc (NASDAQ:SRNE), and Amyris Inc (NASDAQ:AMRS). This group of stocks’ market values match FLXN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HYI | 4 | 34278 | 0 |
| LIOX | 16 | 57854 | 1 |
| SRNE | 13 | 58933 | 3 |
| AMRS | 4 | 4374 | -1 |
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $39 million, close to the $37 million figure in FLXN’s case. Lionbridge Technologies, Inc. (NASDAQ:LIOX) is the most popular stock in this table with a total of 16 funds reporting long positions, whole Western Asset High Yield Defined Opportunity Fund Inc. (NYSE:HYI) is the least popular one. Flexion Therapeutics Inc (NASDAQ:FLXN) 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. In this regard LIOX might be a better candidate to consider a long position.
