How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Epizyme Inc (NASDAQ:EPZM) and determine whether hedge funds had an edge regarding this stock.
Epizyme Inc (NASDAQ:EPZM) investors should be aware of an increase in hedge fund interest in recent months. EPZM was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with EPZM positions at the end of the previous quarter. Our calculations also showed that EPZM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
To most market participants, hedge funds are viewed as unimportant, old investment vehicles of yesteryear. While there are greater than 8000 funds trading at present, Our researchers hone in on the leaders of this group, about 850 funds. Most estimates calculate that this group of people administer most of the hedge fund industry’s total asset base, and by shadowing their finest investments, Insider Monkey has figured out a number of investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Matthew Strobeck of Birchview Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to check out the key hedge fund action surrounding Epizyme Inc (NASDAQ:EPZM).
What does smart money think about Epizyme Inc (NASDAQ:EPZM)?
At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EPZM over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jeremy Green’s Redmile Group has the biggest position in Epizyme Inc (NASDAQ:EPZM), worth close to $136 million, corresponding to 3.8% of its total 13F portfolio. Coming in second is Palo Alto Investors, led by William Leland Edwards, holding a $86.1 million position; 7.2% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism include Mitchell Blutt’s Consonance Capital Management, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Christiana Goh Bardon’s Burrage Capital Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Epizyme Inc (NASDAQ:EPZM), around 17.63% of its 13F portfolio. Burrage Capital Management is also relatively very bullish on the stock, designating 12.34 percent of its 13F equity portfolio to EPZM.
As one would reasonably expect, key money managers were breaking ground themselves. Rhenman & Partners Asset Management, managed by Henrik Rhenman, established the largest position in Epizyme Inc (NASDAQ:EPZM). Rhenman & Partners Asset Management had $5.4 million invested in the company at the end of the quarter. Mark Hart III’s Corriente Advisors also made a $3.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka’s AlphaCrest Capital Management, Matthew Strobeck’s Birchview Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Epizyme Inc (NASDAQ:EPZM). These stocks are Badger Meter, Inc. (NYSE:BMI), Hub Group Inc (NASDAQ:HUBG), Arvinas, Inc. (NASDAQ:ARVN), and NIC Inc. (NASDAQ:EGOV). This group of stocks’ market valuations are closest to EPZM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BMI | 20 | 125239 | 0 |
| HUBG | 17 | 190642 | -2 |
| ARVN | 25 | 431346 | -1 |
| EGOV | 17 | 105397 | -5 |
| Average | 19.75 | 213156 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $213 million. That figure was $352 million in EPZM’s case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand Hub Group Inc (NASDAQ:HUBG) is the least popular one with only 17 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. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately EPZM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EPZM were disappointed as the stock returned 3.5% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
