Should You Follow Smart Money Into Vertex Pharmaceuticals Incorporated (VRTX)?

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 elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

Vertex Pharmaceuticals Incorporated has experienced an increase in activity from the world’s largest hedge funds in recent months, as 51 funds from our database reported stakes as of September 30, up by six on the quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Illumina, Inc. (NASDAQ:ILMN), Archer Daniels Midland Company (NYSE:ADM), and Cardinal Health, Inc. (NYSE:CAH) to gather more data points.

At the moment there are numerous formulas market participants put to use to assess stocks. A duo of the less utilized formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outperform the S&P 500 by a healthy margin (see the details here).

Keeping this in mind, we’re going to check out the new action encompassing Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

Hedge fund activity in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)

At Q3’s end, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the most valuable position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), worth close to $244.6 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $164.5 million position; 0.3% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism consist of Andreas Halvorsen’s Viking Global, John Lykouretzos’s Hoplite Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Consequently, specific money managers have been driving this bullishness. Tourbillon Capital Partners, managed by Jason Karp, created the biggest position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Tourbillon Capital Partners had $20.8 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also made a $20.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Clifford Fox’s Columbus Circle Investors, Eric Bannasch’s Cadian Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. These stocks are Illumina, Inc. (NASDAQ:ILMN), Archer Daniels Midland Company (NYSE:ADM), Cardinal Health, Inc. (NYSE:CAH), and Southwest Airlines Co. (NYSE:LUV). This group of stocks’ market values resemble VRTX’s market value.

As you can see these stocks had an average of 47.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.60 billion, versus $1.41 billion in VRTX’s case. Illumina, Inc. (NASDAQ:ILMN) is the most popular stock in this table with 62 long positions, while Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), even though it is not the most popular stock in this group, it registers a hedge fund interest 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 ILMN might be a better candidate to consider a long position.