While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM).
Is Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) a good investment now? Money managers were turning bullish. The number of long hedge fund positions increased by 7 lately. Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) was in 18 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RYTM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
James E. Flynn of Deerfield Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we’re going to review the latest hedge fund action regarding Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM).
Do Hedge Funds Think RYTM Is A Good Stock To Buy Now?
At first quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 64% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RYTM over the last 23 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, RA Capital Management was the largest shareholder of Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), with a stake worth $103.6 million reported as of the end of March. Trailing RA Capital Management was Baker Bros. Advisors, which amassed a stake valued at $74 million. Deerfield Management, CaaS Capital, and Rock Springs Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), around 1.56% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, earmarking 0.89 percent of its 13F equity portfolio to RYTM.
Consequently, key hedge funds have been driving this bullishness. CaaS Capital, managed by Frank Fu, initiated the largest position in Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). CaaS Capital had $13.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $3.6 million position during the quarter. The following funds were also among the new RYTM investors: Anand Parekh’s Alyeska Investment Group, Paul Tudor Jones’s Tudor Investment Corp, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) but similarly valued. These stocks are Cortexyme, Inc. (NASDAQ:CRTX), Coherus Biosciences Inc (NASDAQ:CHRS), Westport Fuel Systems Inc. (NASDAQ:WPRT), Apogee Enterprises, Inc. (NASDAQ:APOG), Tactile Systems Technology, Inc. (NASDAQ:TCMD), Summit Hotel Properties Inc (NYSE:INN), and Annexon, Inc. (NASDAQ:ANNX). This group of stocks’ market values resemble RYTM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRTX | 3 | 1822 | -5 |
| CHRS | 23 | 144394 | 3 |
| WPRT | 15 | 56843 | 2 |
| APOG | 9 | 23117 | 1 |
| TCMD | 9 | 13931 | -4 |
| INN | 13 | 31309 | 1 |
| ANNX | 10 | 264052 | -1 |
| Average | 11.7 | 76495 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $267 million in RYTM’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 3 bullish hedge fund positions. Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RYTM is 77.5. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately RYTM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RYTM were disappointed as the stock returned -5.9% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Rhythm Pharmaceuticals Inc. (NASDAQ:RYTM)
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Disclosure: None. This article was originally published at Insider Monkey.
