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

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second-worst May since the 1960s due to the escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Arvinas, Inc. (NASDAQ:ARVN) and see how it was affected.

Arvinas, Inc. (NASDAQ:ARVN) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that ARVN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Louis Bacon Moore of Moore Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a gander at the key hedge fund action encompassing Arvinas, Inc. (NASDAQ:ARVN).

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

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the second quarter of 2019. By comparison, 17 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.

Hedge Funds Aren't Crazy About Arvinas, Inc. (NASDAQ:ARVN) Anymore

Among these funds, OrbiMed Advisors held the most valuable stake in Arvinas, Inc. (NASDAQ:ARVN), which was worth $45.2 million at the end of the third quarter. On the second spot was RA Capital Management which amassed $35.8 million worth of shares. Deerfield Management, Hillhouse Capital Management, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position, Berylson Capital Partners allocated the biggest weight to Arvinas, Inc. (NASDAQ:ARVN), around 2.17% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 2.14 percent of its 13F equity portfolio to ARVN.

Seeing as Arvinas, Inc. (NASDAQ:ARVN) has faced falling interest from the smart money, it’s safe to say that there is a sect of hedgies that decided to sell off their positions entirely heading into Q4. At the top of the heap, James A. Silverman’s Opaleye Management dropped the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $4.8 million in stock. Louis Bacon’s fund, Moore Global Investments, also dropped its stock, about $1.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Arvinas, Inc. (NASDAQ:ARVN) but similarly valued. These stocks are CBTX, Inc. (NASDAQ:CBTX), Corporacion America Airports SA (NYSE:CAAP), Cerus Corporation (NASDAQ:CERS), and Tutor Perini Corp (NYSE:TPC). This group of stocks’ market caps are closest to ARVN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBTX 7 9568 0
CAAP 11 27126 0
CERS 8 84245 -5
TPC 9 6194 3
Average 8.75 31783 -0.5

View the table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $140 million in ARVN’s case. Corporacion America Airports SA (NYSE:CAAP) is the most popular stock in this table. On the other hand, CBTX, Inc. (NASDAQ:CBTX) is the least popular one with only 7 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ARVN as the stock returned 78.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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