Was The Smart Money Right About Vertex Pharmaceuticals (VRTX)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in this article.

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistic is 68. VRTX has experienced a decrease in support from the world’s most elite money managers recently. There were 68 hedge funds in our database with VRTX positions at the end of the first quarter. Our calculations also showed that VRTX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 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 S&P 500 ETFs by 79 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 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.

Kamran Moghtaderi of Eversept Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to go over the new hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

Do Hedge Funds Think VRTX Is A Good Stock To Buy Now?

At the end of June, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 54 hedge funds held shares or bullish call options in VRTX a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Renaissance Technologies has a $459.2 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Catherine D. Wood of ARK Investment Management, with a $357.7 million position; 0.7% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism include OrbiMed Advisors, Noam Gottesman’s GLG Partners and Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor). In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 28.62% of its 13F portfolio. HealthInvest Partners AB is also relatively very bullish on the stock, setting aside 9.94 percent of its 13F equity portfolio to VRTX.

Because Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has experienced declining sentiment from the smart money, it’s safe to say that there is a sect of funds that slashed their positions entirely heading into Q3. Intriguingly, Anand Parekh’s Alyeska Investment Group dumped the largest position of the 750 funds tracked by Insider Monkey, worth close to $20.6 million in stock, and Philip Hempleman’s Ardsley Partners was right behind this move, as the fund cut about $15 million worth. These transactions are interesting, as total hedge fund interest was cut by 8 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. We will take a look at Biogen Inc. (NASDAQ:BIIB), Carvana Co. (NYSE:CVNA), ING Groep N.V. (NYSE:ING), UBS Group AG (NYSE:UBS), Relx PLC (NYSE:RELX), Roblox Corporation (NYSE:RBLX), and Canadian Pacific Railway Limited (NYSE:CP). This group of stocks’ market values resemble VRTX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $3447 million. That figure was $2809 million in VRTX’s case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 67.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately VRTX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on VRTX were disappointed as the stock returned -8.3% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Suggested Articles:

• 15 Cheapest Online Shopping Sites in USA
• 25 Most Climate-Resilient Cities in the US
• 10 Best ADR Stocks to Buy in 2021

Disclosure: None. This article was originally published at Insider Monkey.