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Did Hedge Funds Drop The Ball On Incyte Corporation (INCY) ?

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Incyte Corporation (NASDAQ:INCY) changed during the first quarter.

Incyte Corporation (NASDAQ:INCY) was in 32 hedge funds’ portfolios at the end of the third quarter of 2019. INCY has experienced a decrease in support from the world’s most elite money managers recently. There were 36 hedge funds in our database with INCY positions at the end of the previous quarter. Our calculations also showed that INCY 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.

Why do we pay any attention at all to hedge fund sentiment? 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.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the latest hedge fund action encompassing Incyte Corporation (NASDAQ:INCY).

What have hedge funds been doing with Incyte Corporation (NASDAQ:INCY)?

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in INCY 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.

INCY_dec2019

Among these funds, Baker Bros. Advisors held the most valuable stake in Incyte Corporation (NASDAQ:INCY), which was worth $2373.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $203.7 million worth of shares. Matrix Capital Management, AQR Capital Management, and Two Sigma Advisors 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 Baker Bros. Advisors allocated the biggest weight to Incyte Corporation (NASDAQ:INCY), around 16.15% of its portfolio. Matrix Capital Management is also relatively very bullish on the stock, dishing out 3.54 percent of its 13F equity portfolio to INCY.

Seeing as Incyte Corporation (NASDAQ:INCY) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that decided to sell off their full holdings last quarter. Interestingly, Stanley Druckenmiller’s Duquesne Capital sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $17.2 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $17 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Incyte Corporation (NASDAQ:INCY). We will take a look at Principal Financial Group Inc (NASDAQ:PFG), Invitation Homes Inc. (NYSE:INVH), Citizens Financial Group Inc (NYSE:CFG), and WPP plc (NYSE:WPP). This group of stocks’ market caps resemble INCY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFG 19 98613 2
INVH 28 1096604 -3
CFG 38 1571462 -1
WPP 3 41384 0
Average 22 702016 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $702 million. That figure was $3215 million in INCY’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand WPP plc (NYSE:WPP) is the least popular one with only 3 bullish hedge fund positions. Incyte Corporation (NASDAQ:INCY) 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 INCY as the stock returned 26.8% 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.

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