Is ShangPharma Corp (ADR) (SHP) Going to Burn These Hedge Funds?

ShangPharma Corp (ADR) (NYSE:SHP) has experienced an increase in hedge fund interest in recent months.

If you’d ask most traders, hedge funds are seen as underperforming, old financial vehicles of years past. While there are more than 8000 funds in operation at present, we at Insider Monkey look at the crème de la crème of this group, about 450 funds. It is estimated that this group has its hands on the majority of all hedge funds’ total capital, and by monitoring their highest performing investments, we have revealed a few investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 24 percentage points in 7 months (explore the details and some picks here).

Just as beneficial, positive insider trading activity is a second way to parse down the investments you’re interested in. There are a number of incentives for a corporate insider to get rid of shares of his or her company, but just one, very obvious reason why they would behave bullishly. Various empirical studies have demonstrated the market-beating potential of this method if investors know what to do (learn more here).

With these “truths” under our belt, we’re going to take a glance at the key action surrounding ShangPharma Corp (ADR) (NYSE:SHP).

How are hedge funds trading ShangPharma Corp (ADR) (NYSE:SHP)?

Heading into 2013, a total of 6 of the hedge funds we track were bullish in this stock, a change of 50% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably.

Of the funds we track, Ayer Capital Management, managed by Jay Venkatesen, holds the most valuable position in ShangPharma Corp (ADR) (NYSE:SHP). Ayer Capital Management has a $4.5 million position in the stock, comprising 2.4% of its 13F portfolio. On Ayer Capital Management’s heels is Brian Taylor of Pine River Capital Management, with a $4.1 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedgies with similar optimism include Ken Griffin’s Citadel Investment Group, John Arnold’s Centaurus Advisors and Philip Hempleman’s Ardsley Partners.

Consequently, key money managers were breaking ground themselves. Centaurus Advisors, managed by John Arnold, established the most outsized position in ShangPharma Corp (ADR) (NYSE:SHP). Centaurus Advisors had 1.3 million invested in the company at the end of the quarter. Philip Hempleman’s Ardsley Partners also initiated a $0.3 million position during the quarter.

What have insiders been doing with ShangPharma Corp (ADR) (NYSE:SHP)?

Bullish insider trading is particularly usable when the company we’re looking at has seen transactions within the past six months. Over the last six-month time period, ShangPharma Corp (ADR) (NYSE:SHP) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to ShangPharma Corp (ADR) (NYSE:SHP). These stocks are Durata Therapeutics Inc (NASDAQ:DRTX), Enzon Pharmaceuticals, Inc. (NASDAQ:ENZN), OncoGenex Pharmaceuticals Inc (NASDAQ:OGXI), Cytori Therapeutics Inc. (USA) (NASDAQ:CYTX), and Cempra Inc (NASDAQ:CEMP). This group of stocks belong to the biotechnology industry and their market caps are closest to SHP’s market cap.

With the results shown by our time-tested strategies, retail investors must always monitor hedge fund and insider trading activity, and ShangPharma Corp (ADR) (NYSE:SHP) is an important part of this process.

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