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Are Hedge Funds Losing Interest In Vanda Pharmaceuticals Inc. (VNDA)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) to find out whether it was one of their high conviction long-term ideas.

Is Vanda Pharmaceuticals the right investment to pursue these days? The best stock pickers are becoming less hopeful. The number of long hedge fund bets decreased by 2 in recent months. VNDA was in 23 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with VNDA positions at the end of the previous quarter. At the end of this article we will also compare VNDA to other stocks including K12 Inc. (NYSE:LRN), Computer Programs & Systems, Inc. (NASDAQ:CPSI), and AngioDynamics, Inc. (NASDAQ:ANGO) to get a better sense of its popularity.

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In the financial world, there are a multitude of methods stock traders put to use to analyze their holdings. A couple of the most underrated methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a solid margin (see the details here).

Now, we’re going to take a look at the key action regarding Vanda Pharmaceuticals Inc. (NASDAQ:VNDA).

What does the smart money think about Vanda Pharmaceuticals Inc. (NASDAQ:VNDA)?

At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Deerfield Management, managed by James E. Flynn, holds the most valuable position in Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). Deerfield Management has a $54 million position in the stock, comprising 2.1% of its 13F portfolio. Coming in second is Palo Alto Investors, led by William Leland Edwards, holding a $45.1 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain John Paulson’s Paulson & Co, Kurt von Emster’s venBio Select Advisor and Mark Kingdon’s Kingdon Capital.

Due to the fact that Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) has witnessed a declination in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that decided to sell off their positions entirely in the third quarter. Interestingly, Julian Baker and Felix Baker’s Baker Bros. Advisors dropped the largest position of the 700 funds monitored by Insider Monkey, worth an estimated $5.2 million in stock, and Ken Greenberg and David Kim’s Ghost Tree Capital was right behind this move, as the fund said goodbye to about $4.4 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). We will take a look at K12 Inc. (NYSE:LRN), Computer Programs & Systems, Inc. (NASDAQ:CPSI), AngioDynamics, Inc. (NASDAQ:ANGO), and Chiasma Inc (NASDAQ:CHMA). All of these stocks’ market caps match VNDA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LRN 19 59060 1
CPSI 8 12790 -3
ANGO 16 99558 1
CHMA 4 23048 4

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $281 million in VNDA’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table, registering 19 funds with long stakes. On the other hand Chiasma Inc (NASDAQ:CHMA) is the least popular one. Compared to these stocks, Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is more popular among hedge funds. Therefore, considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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