Were These Hedge Funds Right About Selling Vertex Pharmaceuticals Incorporated (VRTX)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) changed recently.

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 54 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 56. VRTX investors should be aware of a decrease in hedge fund interest recently. There were 56 hedge funds in our database with VRTX holdings at the end of March. Our calculations also showed that VRTX 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.

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 58 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.

Henrik Rhenman of Rhenman & Partners Asset Management

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. With all of this in mind we’re going to analyze the latest hedge fund action regarding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

How have hedgies been trading Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?

At the end of the second quarter, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VRTX over the last 20 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), worth close to $1.6784 billion, comprising 1.4% of its total 13F portfolio. On Renaissance Technologies’s heels is John Overdeck and David Siegel of Two Sigma Advisors, with a $353 million position; the fund has 1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Rajiv Jain’s GQG Partners, OrbiMed Advisors and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 7.1% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, dishing out 4.31 percent of its 13F equity portfolio to VRTX.

Seeing as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few funds who sold off their full holdings by the end of the second quarter. Interestingly, Ken Griffin’s Citadel Investment Group dumped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $106.4 million in stock. Arsani William’s fund, Logos Capital, also cut its stock, about $7.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. We will take a look at Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Mondelez International Inc (NASDAQ:MDLZ), Altria Group Inc (NYSE:MO), Zoom Video Communications, Inc. (NASDAQ:ZM), Becton, Dickinson and Company (NYSE:BDX), Rio Tinto Group (NYSE:RIO), and Crown Castle International Corp. (NYSE:CCI). This group of stocks’ market caps resemble VRTX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2326 million. That figure was $3478 million in VRTX’s case. Mondelez International Inc (NASDAQ:MDLZ) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 5 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 81.9. 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 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 beat the market by 21 percentage points. Unfortunately VRTX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VRTX were disappointed as the stock returned -27.1% since the end of June (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 many of these stocks already outperformed the market so far this year.

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