Should You Add Epizyme Inc (EPZM) to Your Portfolio?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Epizyme Inc (NASDAQ:EPZM) .

Epizyme Inc (NASDAQ:EPZM) has seen an increase in enthusiasm from smart money in recent months. There were 12 hedge funds in our database with EPZM positions at the end of the previous quarter. At the end of this article we will also compare EPZM to other stocks including PDF Solutions, Inc. (NASDAQ:PDFS), SP Plus Corp (NASDAQ:SP), and K12 Inc. (NYSE:LRN) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, we’re going to check out the new action regarding Epizyme Inc (NASDAQ:EPZM).

Hedge fund activity in Epizyme Inc (NASDAQ:EPZM)

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EPZM over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, William Leland Edwards’ Palo Alto Investors has the number one position in Epizyme Inc (NASDAQ:EPZM), worth close to $27.7 million, accounting for 1.6% of its total 13F portfolio. Sitting at the No. 2 spot is QVT Financial, led by Daniel Gold, holding a $8.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Michael Hintze’s CQS Cayman LP and Eli Casdin’s Casdin Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, key hedge funds were breaking ground themselves. PDT Partners, led by Peter Muller, assembled the most outsized position in Epizyme Inc (NASDAQ:EPZM). PDT Partners had $0.5 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also initiated a $0.5 million position during the quarter. The only other fund with a brand new EPZM position is Ken Griffin’s Citadel Investment Group.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Epizyme Inc (NASDAQ:EPZM) but similarly valued. These stocks are PDF Solutions, Inc. (NASDAQ:PDFS), SP Plus Corp (NASDAQ:SP), K12 Inc. (NYSE:LRN), and Kforce Inc. (NASDAQ:KFRC). This group of stocks’ market values are closest to EPZM’s market value.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $65 million in EPZM’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Kforce Inc. (NASDAQ:KFRC) is the least popular one with only 8 bullish hedge fund positions. Epizyme Inc (NASDAQ:EPZM) 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 LRN might be a better candidate to consider taking a long position in.

Disclosure: none