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Is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) Going to Burn These Hedge Funds?

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) investors should pay attention to a decrease in hedge fund interest lately.

Vertex call spread eyes big gains in drug maker's shares

In the 21st century investor’s toolkit, there are dozens of methods market participants can use to monitor the equity markets. Two of the most innovative are hedge fund and insider trading interest. At Insider Monkey, our studies have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the S&P 500 by a healthy margin (see just how much).

Just as integral, bullish insider trading sentiment is a second way to break down the financial markets. Obviously, there are many stimuli for a corporate insider to sell shares of his or her company, but only one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the impressive potential of this tactic if investors understand where to look (learn more here).

With all of this in mind, it’s important to take a glance at the recent action encompassing Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

What have hedge funds been doing with Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?

At year’s end, a total of 25 of the hedge funds we track were long in this stock, a change of -17% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably.

When looking at the hedgies we track, Sectoral Asset Management, managed by Jérôme Pfund and Michael Sjöström, holds the largest position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Sectoral Asset Management has a $142 million position in the stock, comprising 5% of its 13F portfolio. On Sectoral Asset Management’s heels is Cliff Asness of AQR Capital Management, with a $41 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedgies with similar optimism include D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group.

Because Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has witnessed bearish sentiment from the smart money, we can see that there exists a select few funds who were dropping their positions entirely heading into 2013. Interestingly, Bain Capital’s Brookside Capital dumped the largest position of the 450+ funds we monitor, totaling close to $86 million in stock.. Julian Baker and Felix Baker’s fund, Baker Bros. Advisors, also dumped its stock, about $45 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds heading into 2013.

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

Insider buying is at its handiest when the company we’re looking at has seen transactions within the past 180 days. Over the last half-year time period, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has experienced 1 unique insiders purchasing, and 7 insider sales (see the details of insider trades here).

With the returns shown by our studies, retail investors should always monitor hedge fund and insider trading activity, and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is no exception.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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