Is ISIS Pharmaceuticals, Inc. (SIS) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in the third quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) in this article.

ISIS Pharmaceuticals, Inc. was in 21 hedge funds’ portfolios at the end of September. ISIS investors should pay attention to a decrease in hedge fund sentiment recently. There were 26 hedge funds in our database with ISIS positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as StanCorp Financial Group, Inc. (NYSE:SFG), Seattle Genetics, Inc. (NASDAQ:SGEN), and Cameco Corporation (USA) (NYSE:CCJ) to gather more data points.

In the 21st century investor’s toolkit there are dozens of gauges stock traders can use to size up stocks. A pair of the most underrated gauges are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best investment managers can trounce the broader indices by a healthy amount (see the details here).

With all of this in mind, let’s view the recent action surrounding ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS).

What does the smart money think about ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS)?

Heading into Q4, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 19% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS). According to its latest quarterly report, the fund has a $22.8 million position in the stock, comprising less than 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, led by Jim Simons, holding a $19.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism encompass John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Since ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) has faced declining sentiment from the smart money, we can see that there were a few hedgies that slashed their entire stakes in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest position of all the hedgies followed by Insider Monkey, totaling close to $22.3 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its entire holding, about $18 million worth of ISIS shares. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) but similarly valued. We will take a look at StanCorp Financial Group, Inc. (NYSE:SFG), Seattle Genetics, Inc. (NASDAQ:SGEN), Cameco Corporation (USA) (NYSE:CCJ), and Michaels Companies Inc (NASDAQ:MIK). This group of stocks’ market valuations resemble ISIS’s market valuation.

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 $777 million. That figure was a meager $94 million in ISIS’s case, a negative signal. StanCorp Financial Group, Inc. (NYSE:SFG) is the most popular stock in this table, while the four stocks, including ISIS Pharmaceuticals, Inc. (NASDAQ:ISIS) sit at the bottom with only 21 bullish hedge fund positions. 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.