Hedge Funds Are Buying Ironwood Pharmaceuticals, Inc. (IRWD)

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. IRWD was in 21 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with IRWD holdings at the end of the previous quarter. At the end of this article we will also compare IRWD to other stocks including Finisar Corporation (NASDAQ:FNSR), KBR, Inc. (NYSE:KBR), and Groupon Inc (NASDAQ:GRPN) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)?

Heading into the fourth quarter of 2016, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 17% bump from the second quarter of 2016, with ownership of the stock among hedge funds rising to a yearly high as a result. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, OrbiMed Advisors, managed by Samuel Isaly, holds the most valuable position in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). OrbiMed Advisors has a $158 million position in the stock, comprising 1.8% of its 13F portfolio. The second most bullish fund manager is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds an $86.1 million position. Some other hedge funds and institutional investors with similar optimism comprise Roberto Mignone’s Bridger Management, Mitchell Blutt’s Consonance Capital Management and Oleg Nodelman’s EcoR1 Capital.

Consequently, key money managers have jumped into Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). Arrowstreet Capital had $8.7 million invested in the company at the end of the quarter. Eric Bannasch’s Cadian Capital also initiated a $1.6 million position during the quarter. The other funds with brand new IRWD positions are Solomon Kumin’s Folger Hill Asset Management, Israel Englander’s Millennium Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s also examine hedge fund activity in other stocks similar to Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD). We will take a look at Finisar Corporation (NASDAQ:FNSR), KBR, Inc. (NYSE:KBR), Groupon Inc (NASDAQ:GRPN), and Balchem Corporation (NASDAQ:BCPC). This group of stocks’ market valuations match IRWD’s market valuation.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $482 million in IRWD’s case. KBR, Inc. (NYSE:KBR) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 8 bullish hedge fund positions. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KBR might be a better candidate to consider taking a long position in.

Disclosure: None