Did Hedge Funds Drop The Ball On ArQule, Inc. (ARQL) ?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on ArQule, Inc. (NASDAQ:ARQL) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is ArQule, Inc. (NASDAQ:ARQL) a splendid stock to buy now? Money managers are becoming hopeful. The number of bullish hedge fund positions rose by 1 in recent months. Our calculations also showed that ARQL isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Kamran Moghtaderi Eversept Partners

We’re going to go over the recent hedge fund action regarding ArQule, Inc. (NASDAQ:ARQL).

How are hedge funds trading ArQule, Inc. (NASDAQ:ARQL)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARQL over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Nantahala Capital Management held the most valuable stake in ArQule, Inc. (NASDAQ:ARQL), which was worth $57.5 million at the end of the first quarter. On the second spot was Biotechnology Value Fund / BVF Inc which amassed $30.2 million worth of shares. Moreover, Millennium Management, Eversept Partners, and Pura Vida Investments were also bullish on ArQule, Inc. (NASDAQ:ARQL), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in ArQule, Inc. (NASDAQ:ARQL). Marshall Wace LLP had $1.6 million invested in the company at the end of the quarter. Panayotis Takis Sparaggis’s Alkeon Capital Management also initiated a $0.5 million position during the quarter. The other funds with brand new ARQL positions are Jeffrey Talpins’s Element Capital Management, David Harding’s Winton Capital Management, and Mike Vranos’s Ellington.

Let’s check out hedge fund activity in other stocks similar to ArQule, Inc. (NASDAQ:ARQL). We will take a look at Veeco Instruments Inc. (NASDAQ:VECO), AquaVenture Holdings Limited (NYSE:WAAS), Kimball International Inc (NASDAQ:KBAL), and Zymeworks Inc. (NYSE:ZYME). All of these stocks’ market caps resemble ARQL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VECO 10 123001 0
WAAS 10 21356 -1
KBAL 12 88420 2
ZYME 14 120820 3
Average 11.5 88399 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $119 million in ARQL’s case. Zymeworks Inc. (NYSE:ZYME) is the most popular stock in this table. On the other hand Veeco Instruments Inc. (NASDAQ:VECO) is the least popular one with only 10 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on ARQL as the stock returned 102.1% during the same period 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.

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