Did Hedge Funds Drop The Ball On Esperion Therapeutics (ESPR) ?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Esperion Therapeutics (NASDAQ:ESPR) based on those filings.

Is Esperion Therapeutics (NASDAQ:ESPR) a good investment today? The best stock pickers are becoming less hopeful. The number of long hedge fund bets shrunk by 1 lately. Our calculations also showed that ESPR 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’ 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.

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater 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. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action surrounding Esperion Therapeutics (NASDAQ:ESPR).

What have hedge funds been doing with Esperion Therapeutics (NASDAQ:ESPR)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in ESPR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Pentwater Capital Management was the largest shareholder of Esperion Therapeutics (NASDAQ:ESPR), with a stake worth $90.9 million reported as of the end of September. Trailing Pentwater Capital Management was Point72 Asset Management, which amassed a stake valued at $15.4 million. Citadel Investment Group, GLG Partners, and Renaissance Technologies 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 Pentwater Capital Management allocated the biggest weight to Esperion Therapeutics (NASDAQ:ESPR), around 1.42% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to ESPR.

Because Esperion Therapeutics (NASDAQ:ESPR) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few funds that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Christopher James’s Partner Fund Management dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth an estimated $72.3 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $2.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Esperion Therapeutics (NASDAQ:ESPR) but similarly valued. These stocks are Heritage Financial Corporation (NASDAQ:HFWA), Boot Barn Holdings Inc (NYSE:BOOT), Alector, Inc. (NASDAQ:ALEC), and Callon Petroleum Company (NYSE:CPE). This group of stocks’ market values match ESPR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HFWA 9 42375 0
BOOT 22 173218 0
ALEC 13 259407 0
CPE 28 383202 16
Average 18 214551 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $148 million in ESPR’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 9 bullish hedge fund positions. Esperion Therapeutics (NASDAQ:ESPR) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on ESPR as the stock returned 40.1% during the first two months of Q4 and outperformed the market by an even larger margin.

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