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 Idera Pharmaceuticals Inc (NASDAQ:IDRA) ready to rally soon? Money managers are categorically getting more optimistic. The number of bullish hedge fund positions rose by 2 in recent months. IDRAwas in 9 hedge funds’ portfolios at the end of the third quarter of 2016. There were 7 hedge funds in our database with IDRA positions at the end of the previous quarter. At the end of this article we will also compare IDRA to other stocks including Reading International, Inc. (NASDAQ:RDI), Aralez Pharmaceuticals Inc (NASDAQ:ARLZ), and City Office REIT Inc (NYSE:CIO) to get a better sense of its popularity.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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Now, let’s take a look at the fresh action surrounding Idera Pharmaceuticals Inc (NASDAQ:IDRA).
Hedge fund activity in Idera Pharmaceuticals Inc (NASDAQ:IDRA)
Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the second quarter of 2016. By comparison, 15 hedge funds held shares or bullish call options in IDRA heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Julian Baker and Felix Baker’s Baker Bros. Advisors has the number one position in Idera Pharmaceuticals Inc (NASDAQ:IDRA), worth close to $18 million. The second largest stake is held by Kevin Kotler of Broadfin Capital, with a $6.2 million position. Remaining peers with similar optimism consist of William Leland Edwards’s Palo Alto Investors, Anand Parekh’s Alyeska Investment Group and Israel Englander’s Millennium Management which is one of the 10 largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, key hedge funds were breaking ground themselves. Millennium Management established the largest position in Idera Pharmaceuticals Inc (NASDAQ:IDRA). Millennium Management had $0.5 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also initiated a $0.1 million position during the quarter. The only other fund with a new position in the stock is Ken Griffin’s Citadel Investment Group.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Idera Pharmaceuticals Inc (NASDAQ:IDRA) but similarly valued. We will take a look at Reading International, Inc. (NASDAQ:RDI), Aralez Pharmaceuticals Inc (NASDAQ:ARLZ), City Office REIT Inc (NYSE:CIO), and Lionbridge Technologies, Inc. (NASDAQ:LIOX). This group of stocks’ market valuations resemble IDRA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDI | 7 | 15135 | 3 |
| ARLZ | 17 | 92540 | -3 |
| CIO | 6 | 21075 | 1 |
| LIOX | 17 | 72332 | 0 |
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $31 million in IDRA’s case. Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) is the most popular stock in this table. On the other hand City Office REIT Inc (NYSE:CIO) is the least popular one with only 6 bullish hedge fund positions. Idera Pharmaceuticals Inc (NASDAQ:IDRA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ARLZ might be a better candidate to consider taking a long position in.
