Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Esperion Therapeutics (NASDAQ:ESPR) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Esperion Therapeutics (NASDAQ:ESPR) a sound investment today? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets were trimmed by 1 lately. Our calculations also showed that ESPR 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). ESPR was in 15 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with ESPR holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Matthew Halbower of Pentwater Capital
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 let’s check out the key hedge fund action regarding Esperion Therapeutics (NASDAQ:ESPR).
What have hedge funds been doing with Esperion Therapeutics (NASDAQ:ESPR)?
Heading into the first quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ESPR over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Esperion Therapeutics (NASDAQ:ESPR) was held by Pentwater Capital Management, which reported holding $134.4 million worth of stock at the end of September. It was followed by GLG Partners with a $16.9 million position. Other investors bullish on the company included Millennium Management, Balyasny Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Pentwater Capital Management allocated the biggest weight to Esperion Therapeutics (NASDAQ:ESPR), around 2.2% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to ESPR.
Because Esperion Therapeutics (NASDAQ:ESPR) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that decided to sell off their full holdings last quarter. Intriguingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors sold off the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $6.7 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $5.2 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Esperion Therapeutics (NASDAQ:ESPR). We will take a look at Provident Financial Services, Inc. (NYSE:PFS), Zuora, Inc. (NYSE:ZUO), LGI Homes Inc (NASDAQ:LGIH), and The RealReal, Inc. (NASDAQ:REAL). This group of stocks’ market values match ESPR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFS | 16 | 60229 | 4 |
| ZUO | 26 | 160649 | 0 |
| LGIH | 13 | 66254 | -2 |
| REAL | 13 | 153969 | -8 |
| Average | 17 | 110275 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $211 million in ESPR’s case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand LGI Homes Inc (NASDAQ:LGIH) is the least popular one with only 13 bullish hedge fund positions. Esperion Therapeutics (NASDAQ:ESPR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ESPR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESPR investors were disappointed as the stock returned -46.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
