We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Karyopharm Therapeutics Inc (NASDAQ:KPTI).
Karyopharm Therapeutics Inc (NASDAQ:KPTI) was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. KPTI has seen an increase in enthusiasm from smart money recently. There were 14 hedge funds in our database with KPTI positions at the end of the previous quarter. Our calculations also showed that KPTI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 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.
William Leland Edwards of Palo Alto Investors
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the fresh hedge fund action regarding Karyopharm Therapeutics Inc (NASDAQ:KPTI).
What have hedge funds been doing with Karyopharm Therapeutics Inc (NASDAQ:KPTI)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 71% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KPTI over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Mitchell Blutt’s Consonance Capital Management has the most valuable position in Karyopharm Therapeutics Inc (NASDAQ:KPTI), worth close to $117.5 million, corresponding to 7.2% of its total 13F portfolio. The second most bullish fund manager is Behzad Aghazadeh of venBio Select Advisor, with a $113.1 million position; 3.3% of its 13F portfolio is allocated to the stock. Other peers with similar optimism encompass William Leland Edwards’s Palo Alto Investors, Phill Gross and Robert Atchinson’s Adage Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to Karyopharm Therapeutics Inc (NASDAQ:KPTI), around 7.17% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, setting aside 4.85 percent of its 13F equity portfolio to KPTI.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Parkman Healthcare Partners, managed by Greg Martinez, established the biggest position in Karyopharm Therapeutics Inc (NASDAQ:KPTI). Parkman Healthcare Partners had $9.6 million invested in the company at the end of the quarter. Bhagwan Jay Rao’s Integral Health Asset Management also made a $6.6 million investment in the stock during the quarter. The following funds were also among the new KPTI investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Renaissance Technologies, and Panayotis Takis Sparaggis’s Alkeon Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Karyopharm Therapeutics Inc (NASDAQ:KPTI). These stocks are Standard Motor Products, Inc. (NYSE:SMP), Qudian Inc. (NYSE:QD), The Michaels Companies, Inc. (NASDAQ:MIK), and Kearny Financial Corp. (NASDAQ:KRNY). This group of stocks’ market values are similar to KPTI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SMP | 10 | 104835 | -4 |
| QD | 14 | 51185 | 2 |
| MIK | 26 | 156668 | 2 |
| KRNY | 21 | 130512 | 5 |
| Average | 17.75 | 110800 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $521 million in KPTI’s case. The Michaels Companies, Inc. (NASDAQ:MIK) is the most popular stock in this table. On the other hand Standard Motor Products, Inc. (NYSE:SMP) is the least popular one with only 10 bullish hedge fund positions. Karyopharm Therapeutics Inc (NASDAQ:KPTI) is not the most popular stock in this group but hedge fund interest is still above average. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on KPTI, though not to the same extent, as the stock returned 0.9% during the first four months of 2020 (through May 1st) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
