Were Hedge Funds Right About Biohaven Pharma (BHVN)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).

Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) investors should pay attention to an increase in enthusiasm from smart money lately. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BHVN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon of Kingdon Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a look at the fresh hedge fund action regarding Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN).

Hedge fund activity in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN)

At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 45% from the first quarter of 2020. On the other hand, there were a total of 38 hedge funds with a bullish position in BHVN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) was held by Marshall Wace LLP, which reported holding $182.9 million worth of stock at the end of September. It was followed by Kingdon Capital with a $95.2 million position. Other investors bullish on the company included Tang Capital Management, Knoll Capital Management, and Great Point Partners. In terms of the portfolio weights assigned to each position Knoll Capital Management allocated the biggest weight to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), around 35.84% of its 13F portfolio. Blackcrane Capital is also relatively very bullish on the stock, dishing out 10.16 percent of its 13F equity portfolio to BHVN.

As aggregate interest increased, key money managers have been driving this bullishness. Tang Capital Management, managed by Kevin C. Tang, initiated the most valuable position in Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). Tang Capital Management had $71.7 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also initiated a $39.2 million position during the quarter. The other funds with brand new BHVN positions are Principal Global Investors’s Columbus Circle Investors, Larry Robbins’s Glenview Capital, and James A. Silverman’s Opaleye Management.

Let’s now take a look at hedge fund activity in other stocks similar to Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). We will take a look at Tetra Tech, Inc. (NASDAQ:TTEK), Lancaster Colony Corporation (NASDAQ:LANC), Inovio Pharmaceuticals Inc (NASDAQ:INO), FTI Consulting, Inc. (NYSE:FCN), Tata Motors Limited (NYSE:TTM), Blueprint Medicines Corporation (NASDAQ:BPMC), and Under Armour Inc (NYSE:UA). This group of stocks’ market caps are closest to BHVN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $916 million in BHVN’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is more popular among hedge funds. Our overall hedge fund sentiment score for BHVN is 90. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately BHVN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BHVN were disappointed as the stock returned 8% since the end of the second quarter (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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