How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ovid Therapeutics Inc. (NASDAQ:OVID) and determine whether hedge funds had an edge regarding this stock.
Is Ovid Therapeutics Inc. (NASDAQ:OVID) a marvelous investment right now? The best stock pickers were getting less bullish. The number of bullish hedge fund positions retreated by 5 in recent months. Our calculations also showed that OVID isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Kerr Neilson of Platinum Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action surrounding Ovid Therapeutics Inc. (NASDAQ:OVID).
Hedge fund activity in Ovid Therapeutics Inc. (NASDAQ:OVID)
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the fourth quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in OVID a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ovid Therapeutics Inc. (NASDAQ:OVID) was held by Consonance Capital Management, which reported holding $7.7 million worth of stock at the end of September. It was followed by Biotechnology Value Fund / BVF Inc with a $3.8 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Platinum Asset Management. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to Ovid Therapeutics Inc. (NASDAQ:OVID), around 0.57% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, dishing out 0.36 percent of its 13F equity portfolio to OVID.
Since Ovid Therapeutics Inc. (NASDAQ:OVID) has experienced bearish sentiment from the smart money, we can see that there was a specific group of money managers who were dropping their entire stakes in the first quarter. It’s worth mentioning that Warren Lammert’s Granite Point Capital sold off the biggest investment of all the hedgies watched by Insider Monkey, worth close to $1.4 million in stock. Austin Wiggins Hopper’s fund, AWH Capital, also cut its stock, about $1.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds in the first quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Ovid Therapeutics Inc. (NASDAQ:OVID). We will take a look at Jounce Therapeutics, Inc. (NASDAQ:JNCE), FedNat Holding Co (NASDAQ:FNHC), Fidus Investment Corp (NASDAQ:FDUS), and Agile Therapeutics Inc (NASDAQ:AGRX). This group of stocks’ market values are similar to OVID’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JNCE | 10 | 8854 | -6 |
| FNHC | 7 | 12007 | 1 |
| FDUS | 8 | 3314 | 2 |
| AGRX | 15 | 38935 | 3 |
| Average | 10 | 15778 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $19 million in OVID’s case. Agile Therapeutics Inc (NASDAQ:AGRX) is the most popular stock in this table. On the other hand FedNat Holding Co (NASDAQ:FNHC) is the least popular one with only 7 bullish hedge fund positions. Ovid Therapeutics Inc. (NASDAQ:OVID) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on OVID as the stock returned 147.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
