The markets opened lower on Friday on the back of Fed’s decision not to raise interest rates, which reduced investors back to uncertainty and signaled further worries regarding the financial markets and the global economy. However, two healthcare stocks gained ground in the first hours of trading, including TRACON Pharmaceuticals Inc (NASDAQ:TCON), which surged by around 40% on the back of positive study results. In this article we will take a closer look at the developments that moved both stocks higher today and will also see how hedge funds have been trending them in order to better understand the long-term potential of these investment opportunities.
The hedge fund sentiment is a metric that is often overlooked, because many think that hedge funds are not good investors to emulate because of their lagging returns in the last years. However, what is important to point out is that the weak returns of equity hedge funds come mainly from their hedging positions, which represent a necessary precaution if we take into account hedge funds’ large sizes. Our research that involved analyzing the equity portfolios of several hundred hedge funds between 1999 and 2012, has shown that hedge funds are still very skilled at picking investments on the long side of their portfolios. This is particularly observable among their small-cap ideas, which showed returns of almost one percentage point above the market in backtests. Our strategy involves imitating a portfolio of 15 most popular stocks among hedge funds and it has returned 118% since it went live in August 2012, beating the S&P 500 ETF (SPY) by some 60 percentage points (see more details here).
The first stock that we would like to mention in this article is TRACON Pharmaceuticals Inc (NASDAQ:TCON), which registered its boost on a volume of 1.49 million shares, above the average of just 52,300 shares. Earlier today, the clinical stage biopharmaceutical company said that its single patient Phase 2 clinical trial of TRC105, for the treatment of choriocarcinoma, showed that the drug had a complete response. TRACON is engaged in the development of novelty therapies for cancer. The results of the trial, which involved a 37-year old woman with persistent and unresectable metastatic choriocarcinoma, were presented at the 18th World Congress of Gestational Trophloblastic Diseases in Indonesia.
Hedge funds from our database are bullish on TRACON Pharmaceuticals Inc (NASDAQ:TCON) as they held over 11% of the company at the end of June. However, due to the company’s small size and weak financial results, it’s not very popular among the investors that we follow. During the second quarter, the number of funds with long positions in the company declined by two to five, and the total value of their holdings slid to $15.98 million from $20.24 million. Among these investors, the two largest stakes are held by James E. Flynn’s Deerfield Management and Jacob Gottlieb’s Visium Asset Management, which disclosed ownership of 485,000 shares and 436,300 shares in their latest 13F filings respectively. On the third spot is Daniel Gold’s QVT Financial, which owns 368,300 shares.