Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Royalty Pharma Plc (NASDAQ:RPRX).
Is RPRX a good stock to buy now? Prominent investors were taking a bearish view. The number of long hedge fund bets fell by 4 lately. Royalty Pharma Plc (NASDAQ:RPRX) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 24. Our calculations also showed that RPRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Royalty Pharma Plc (NASDAQ:RPRX).
Do Hedge Funds Think RPRX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RPRX over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Royalty Pharma Plc (NASDAQ:RPRX) was held by Adage Capital Management, which reported holding $1935.9 million worth of stock at the end of September. It was followed by Harvard Management Co with a $618 million position. Other investors bullish on the company included Suvretta Capital Management, Viking Global, and Healthcor Management LP. In terms of the portfolio weights assigned to each position Harvard Management Co allocated the biggest weight to Royalty Pharma Plc (NASDAQ:RPRX), around 33.99% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, dishing out 4.85 percent of its 13F equity portfolio to RPRX.
Seeing as Royalty Pharma Plc (NASDAQ:RPRX) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their full holdings in the third quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital cut the largest stake of the 750 funds tracked by Insider Monkey, comprising about $20.7 million in stock. Farallon Capital, also cut its stock, about $13.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Royalty Pharma Plc (NASDAQ:RPRX) but similarly valued. We will take a look at Lennar Corporation (NYSE:LEN), Xilinx, Inc. (NASDAQ:XLNX), Prudential Financial Inc (NYSE:PRU), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Pinterest, Inc. (NYSE:PINS), ResMed Inc. (NYSE:RMD), and Tencent Music Entertainment Group (NYSE:TME). This group of stocks’ market caps are closest to RPRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEN | 60 | 1740218 | 5 |
| XLNX | 46 | 1198711 | -1 |
| PRU | 34 | 479419 | 8 |
| ALXN | 58 | 3776330 | 1 |
| PINS | 80 | 3484050 | 27 |
| RMD | 35 | 236573 | 10 |
| TME | 24 | 571503 | -6 |
| Average | 48.1 | 1640972 | 6.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.1 hedge funds with bullish positions and the average amount invested in these stocks was $1641 million. That figure was $2901 million in RPRX’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Tencent Music Entertainment Group (NYSE:TME) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Royalty Pharma Plc (NASDAQ:RPRX) is even less popular than TME. Our overall hedge fund sentiment score for RPRX is 26. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards RPRX. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th but managed to beat the market again by 15.8 percentage points. Unfortunately RPRX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RPRX investors were disappointed as the stock returned 2.9% since the end of the third quarter (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Follow Royalty Pharma Plc (NASDAQ:RPRX)
Follow Royalty Pharma Plc (NASDAQ:RPRX)
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Disclosure: None. This article was originally published at Insider Monkey.
