Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Galapagos NV (NASDAQ:GLPG) a healthy stock for your portfolio? The best stock pickers are turning bullish. The number of long hedge fund positions inched up by 2 recently. Our calculations also showed that GLPG isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the new hedge fund action regarding Galapagos NV (NASDAQ:GLPG).
How have hedgies been trading Galapagos NV (NASDAQ:GLPG)?
Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in GLPG at the beginning of this year. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, OrbiMed Advisors was the largest shareholder of Galapagos NV (NASDAQ:GLPG), with a stake worth $44 million reported as of the end of September. Trailing OrbiMed Advisors was Deerfield Management, which amassed a stake valued at $29.2 million. Baker Bros. Advisors, Rock Springs Capital Management, and Laurion Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers have jumped into Galapagos NV (NASDAQ:GLPG) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, created the most outsized position in Galapagos NV (NASDAQ:GLPG). Laurion Capital Management had $19.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $15.3 million investment in the stock during the quarter. The other funds with brand new GLPG positions are Anand Parekh’s Alyeska Investment Group, Louis Bacon’s Moore Global Investments, and Peter A. Wright’s P.A.W. CAPITAL PARTNERS.
Let’s now take a look at hedge fund activity in other stocks similar to Galapagos NV (NASDAQ:GLPG). These stocks are CarGurus, Inc. (NASDAQ:CARG), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), YPF Sociedad Anonima (NYSE:YPF), and Integrated Device Technology, Inc. (NASDAQ:IDTI). This group of stocks’ market caps are similar to GLPG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CARG | 17 | 792106 | 6 |
| LECO | 19 | 365551 | 0 |
| YPF | 17 | 241797 | -7 |
| IDTI | 35 | 838486 | 19 |
| Average | 22 | 559485 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $559 million. That figure was $201 million in GLPG’s case. Integrated Device Technology, Inc. (NASDAQ:IDTI) is the most popular stock in this table. On the other hand CarGurus, Inc. (NASDAQ:CARG) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Galapagos NV (NASDAQ:GLPG) is even less popular than CARG. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
