“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Galapagos NV (NASDAQ:GLPG).
Galapagos NV (NASDAQ:GLPG) was in 13 hedge funds’ portfolios at the end of September. GLPG shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 14 hedge funds in our database with GLPG positions at the end of the previous quarter. Our calculations also showed that GLPG 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Kris Jenner of Rock Springs Capital Management
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. We’re going to go over the new hedge fund action regarding Galapagos NV (NASDAQ:GLPG).
What have hedge funds been doing with Galapagos NV (NASDAQ:GLPG)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in GLPG a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Biotechnology Value Fund held the most valuable stake in Galapagos NV (NASDAQ:GLPG), which was worth $46.6 million at the end of the third quarter. On the second spot was Rock Springs Capital Management which amassed $26.7 million worth of shares. Cormorant Asset Management, Deerfield Management, and Aquilo Capital 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 Aquilo Capital Management allocated the biggest weight to Galapagos NV (NASDAQ:GLPG), around 6.11% of its 13F portfolio. Biotechnology Value Fund is also relatively very bullish on the stock, setting aside 4.89 percent of its 13F equity portfolio to GLPG.
Because Galapagos NV (NASDAQ:GLPG) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers who sold off their positions entirely heading into Q4. At the top of the heap, Israel Englander’s Millennium Management cut the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $4.9 million in stock. Renaissance Technologies, also dropped its stock, about $3.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Galapagos NV (NASDAQ:GLPG) but similarly valued. These stocks are PerkinElmer, Inc. (NYSE:PKI), Kirkland Lake Gold Ltd. (NYSE:KL), Lennox International Inc. (NYSE:LII), and Henry Schein, Inc. (NASDAQ:HSIC). All of these stocks’ market caps are closest to GLPG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PKI | 24 | 975011 | 0 |
| KL | 16 | 376065 | -5 |
| LII | 21 | 193706 | 0 |
| HSIC | 22 | 1248443 | -2 |
| Average | 20.75 | 698306 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $143 million in GLPG’s case. PerkinElmer, Inc. (NYSE:PKI) is the most popular stock in this table. On the other hand Kirkland Lake Gold Ltd. (NYSE:KL) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Galapagos NV (NASDAQ:GLPG) is even less popular than KL. Hedge funds clearly dropped the ball on GLPG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on GLPG as the stock returned 28.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
