Did Hedge Funds Drop The Ball On Arvinas, Inc. (ARVN) ?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The fourth quarter of 2018 is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Arvinas, Inc. (NASDAQ:ARVN).

Arvinas, Inc. (NASDAQ:ARVN) was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2018. ARVN investors should pay attention to a decrease in support from the world’s most elite money managers of late. There were 17 hedge funds in our database with ARVN holdings at the end of the previous quarter. Our calculations also showed that ARVN isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Kolchinsky

Let’s review the fresh hedge fund action surrounding Arvinas, Inc. (NASDAQ:ARVN).

What does the smart money think about Arvinas, Inc. (NASDAQ:ARVN)?

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the second quarter of 2018. By comparison, 0 hedge funds held shares or bullish call options in ARVN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, RA Capital Management held the most valuable stake in Arvinas, Inc. (NASDAQ:ARVN), which was worth $40.3 million at the end of the fourth quarter. On the second spot was OrbiMed Advisors which amassed $34.4 million worth of shares. Moreover, Deerfield Management, Hillhouse Capital Management, and Vivo Capital were also bullish on Arvinas, Inc. (NASDAQ:ARVN), allocating a large percentage of their portfolios to this stock.

Seeing as Arvinas, Inc. (NASDAQ:ARVN) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that slashed their entire stakes in the third quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management said goodbye to the biggest position of the 700 funds watched by Insider Monkey, worth close to $2.5 million in stock, and Joseph Edelman’s Perceptive Advisors was right behind this move, as the fund said goodbye to about $2.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Arvinas, Inc. (NASDAQ:ARVN). We will take a look at Model N Inc (NYSE:MODN), The York Water Company (NASDAQ:YORW), Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), and One Madison Corporation (NYSE:OMAD). All of these stocks’ market caps match ARVN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MODN 14 66447 0
YORW 5 15118 -1
GLDD 14 35672 5
OMAD 11 55695 -3
Average 11 43233 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $102 million in ARVN’s case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand The York Water Company (NASDAQ:YORW) is the least popular one with only 5 bullish hedge fund positions. Arvinas, Inc. (NASDAQ:ARVN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ARVN as the stock returned 77.2% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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