A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of The Medicines Company (NASDAQ:MDCO) during the quarter.
The Medicines Company (NASDAQ:MDCO) investors should pay attention to a decrease in hedge fund sentiment lately. MDCO was in 26 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with MDCO positions at the end of the previous quarter. Our calculations also showed that mdco isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a gander at the latest hedge fund action regarding The Medicines Company (NASDAQ:MDCO).
What have hedge funds been doing with The Medicines Company (NASDAQ:MDCO)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in MDCO heading into this year. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Point State Capital held the most valuable stake in The Medicines Company (NASDAQ:MDCO), which was worth $87.6 million at the end of the third quarter. On the second spot was Partner Fund Management which amassed $76.6 million worth of shares. Moreover, Bridger Management, Camber Capital Management, and Slate Path Capital were also bullish on The Medicines Company (NASDAQ:MDCO), allocating a large percentage of their portfolios to this stock.
Because The Medicines Company (NASDAQ:MDCO) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedge funds who were dropping their full holdings last quarter. It’s worth mentioning that Behzad Aghazadeh’s venBio Select Advisor dropped the largest stake of all the hedgies watched by Insider Monkey, totaling about $35.3 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $12.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to The Medicines Company (NASDAQ:MDCO). We will take a look at United Community Banks Inc (NASDAQ:UCBI), Nabors Industries Ltd. (NYSE:NBR), Shutterfly, Inc. (NASDAQ:SFLY), and Terreno Realty Corporation (NYSE:TRNO). This group of stocks’ market values are similar to MDCO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UCBI | 14 | 75078 | 0 |
| NBR | 39 | 440817 | 2 |
| SFLY | 23 | 550402 | -4 |
| TRNO | 12 | 62944 | 3 |
| Average | 22 | 282310 | 0.25 |
View table here if you experience formatting issues.
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 $282 million. That figure was $697 million in MDCO’s case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 12 bullish hedge fund positions. The Medicines Company (NASDAQ:MDCO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NBR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
