Rockwell Medical Inc (NASDAQ:RMTI)’s stock spiked over 8% today to a high of $18 per share. Yesterday, June 24, the stock climbed 11.3% to a close of $16.64 per share. Over a one-month period, the stock has moved up 58.33%. The stock’s 52-week range until yesterday was $8.10 to $15.04. Year-to-date, the stock has surged 82.79%.
Michael Castor recommended Rockwell Medical Inc (NASDAQ:RMTI) two years ago in the first issue of our monthly newsletter. Since then the stock quadrupled. However, hedge funds are now becoming less confident in the company despite the massive numbers cited above.
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First, a quick word on why we track hedge fund activity. In 2014, equity hedge funds returned just 1.4%. In 2013, that figure was 11.3%, and in 2012, they returned just 4.8%. These are embarrassingly low figures compared to the S&P 500 ETF (SPY)’s 13.5% gain in 2014, 32.3% gain in 2013, and 16% gain in 2012. Does this mean that hedge fund managers are dumber than a bucket of rocks when it comes to picking stocks? The answer is definitely no. Our small-cap hedge fund strategy – which identifies the best small-cap stock picks of the best hedge fund managers – returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year (it’s outperforming it so far in 2015 too). What’s the reason for this discrepancy, you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. They are like mutual funds now. Consider Ray Dalio’s Bridgewater Associates, the largest in the industry with about $165 billion in AUM. It can’t allocate too much money into a small-cap stock as merely obtaining 2% exposure would really move the price. In fact, Dalio can’t even obtain 2% exposure to many small-cap stocks, even if he essentially owned the entire company, as they’re simply too small (or rather, his fund is too big). This is where we come in. Our research has shown that it is actually hedge funds’ small-cap picks that are their best performing ones and we have consistently identified the best picks of the best managers, returning 144% since the launch of our small-cap strategy compared to less than 60% for the S&P 500 (see the details).
We at Insider Monkey also track insider sentiment. For Rockwell Medical, there were no purchases or sales of shares by insiders in the first and second quarters of 2015. Insider Monkey tracks these transactions as they can be used to infer whether top management are positive or negative about their own companies.
With all of this in mind, let’s take a look at the recent action encompassing Rockwell Medical Inc.
How are hedge funds trading Rockwell Medical Inc (NASDAQ:RMTI)?
Heading into Q2, a total of 11 of the hedge funds tracked by Insider Monkey were long in this stock, a decline of 21% from the previous quarter. Aggregate value of holdings also decreased 28.44% to $17.81 million at the end of the first quarter from $24.89 million in the prior quarter. This is despite the stock increasing by 6.32% in the first quarter.
When looking at the hedgies followed by Insider Monkey, Overland Advisors, managed by Gordy Holterman and Derek Dunn, holds the most valuable position in Rockwell Medical Inc (NASDAQ:RMTI). Overland Advisors has a $4.6 million position in 425,000 shares, comprising 0.2% of its 13F portfolio. The second most bullish hedge fund manager is Cormorant Asset Management, managed by Bihua Chen, which held a $3.7 million position in 340,000; the fund has 0.6% of its 13F portfolio invested in the stock. Some other peers that hold long positions consist of Peter Kolchinsky’s RA Capital Management, and Neil Chriss’s Hutchin Hill Capital.
Since Rockwell Medical Inc (NASDAQ:RMTI) has witnessed falling interest from the smart money, it’s safe to say that there is a sect of fund managers that slashed their entire stakes heading into Q2. At the top of the heap, Hal Mintz’s Sabby Capital dropped the biggest investment of all the hedgies followed by Insider Monkey. The fund dumped 275,000 shares or close to $2.8 million. And Anand Parekh of Alyeska Investment Group was right behind this move, as the fund cut about $1 million worth of stock. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q2.
Hedge fund interest in the stock is declining and biotech stocks in general can’t be said to be cheap, so we don’t recommend a long position in Rockwell Medical Inc (NASDAQ:RMTI).
Disclosure: None
