ArQule, Inc. (ARQL) vs. Top 20 Hedge Fund Stocks in 2019

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like ArQule, Inc. (NASDAQ:ARQL) and compare its performance against hedge funds’ favorite stocks.

ArQule, Inc. (NASDAQ:ARQL) was in 24 hedge funds’ portfolios at the end of September. ARQL investors should pay attention to a decrease in hedge fund interest in recent months. There were 25 hedge funds in our database with ARQL holdings at the end of the previous quarter. Our calculations also showed that ARQL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.


Louis Bacon Moore of Moore Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to take a peek at the new hedge fund action encompassing ArQule, Inc. (NASDAQ:ARQL).

What have hedge funds been doing with ArQule, Inc. (NASDAQ:ARQL)?

Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in ARQL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ArQule, Inc. (NASDAQ:ARQL) was held by Nantahala Capital Management, which reported holding $72.1 million worth of stock at the end of September. It was followed by Consonance Capital Management with a $28.8 million position. Other investors bullish on the company included OrbiMed Advisors, Alkeon Capital Management, and Biotechnology Value Fund. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to ArQule, Inc. (NASDAQ:ARQL), around 2.85% of its 13F portfolio. Nantahala Capital Management is also relatively very bullish on the stock, earmarking 2.67 percent of its 13F equity portfolio to ARQL.

Since ArQule, Inc. (NASDAQ:ARQL) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few funds that slashed their full holdings in the third quarter. Intriguingly, Oleg Nodelman’s EcoR1 Capital said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, valued at close to $14.3 million in stock. Efrem Kamen’s fund, Pura Vida Investments, also sold off its stock, about $7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to ArQule, Inc. (NASDAQ:ARQL). We will take a look at Columbus McKinnon Corporation (NASDAQ:CMCO), TCG BDC, Inc. (NASDAQ:CGBD), Diebold Nixdorf Incorporated (NYSE:DBD), and 21Vianet Group Inc (NASDAQ:VNET). This group of stocks’ market valuations are closest to ARQL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMCO 22 63804 2
CGBD 6 28979 -2
DBD 17 165479 2
VNET 12 48229 -5
Average 14.25 76623 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $219 million in ARQL’s case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand TCG BDC, Inc. (NASDAQ:CGBD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks ArQule, Inc. (NASDAQ:ARQL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ARQL as the stock returned 620.6% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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