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Did Hedge Funds Drop The Ball On Intercept Pharmaceuticals Inc (ICPT) ?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Intercept Pharmaceuticals Inc (NASDAQ:ICPT).

Is Intercept Pharmaceuticals Inc (NASDAQ:ICPT) a buy, sell, or hold? The best stock pickers are turning less bullish. The number of bullish hedge fund bets were trimmed by 3 lately. Our calculations also showed that ICPT 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.

Alex Denner Sarissa Capital

Alex Denner of Sarissa Capital Management

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 look at the key hedge fund action surrounding Intercept Pharmaceuticals Inc (NASDAQ:ICPT).

Hedge fund activity in Intercept Pharmaceuticals Inc (NASDAQ:ICPT)

At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in ICPT a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Intercept Pharmaceuticals Inc (NASDAQ:ICPT) was held by Rima Senvest Management, which reported holding $77.7 million worth of stock at the end of September. It was followed by Sarissa Capital Management with a $56.5 million position. Other investors bullish on the company included Citadel Investment Group, Samsara BioCapital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Samsara BioCapital allocated the biggest weight to Intercept Pharmaceuticals Inc (NASDAQ:ICPT), around 18.23% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, earmarking 7.08 percent of its 13F equity portfolio to ICPT.

Judging by the fact that Intercept Pharmaceuticals Inc (NASDAQ:ICPT) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers who sold off their full holdings in the third quarter. Interestingly, Mitchell Blutt’s Consonance Capital Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, worth about $30.9 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also dropped its stock, about $26.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Intercept Pharmaceuticals Inc (NASDAQ:ICPT) but similarly valued. We will take a look at First Bancorp (NYSE:FBP), PagerDuty, Inc. (NYSE:PD), ProAssurance Corporation (NYSE:PRA), and Steelcase Inc. (NYSE:SCS). This group of stocks’ market valuations resemble ICPT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBP 21 198063 -2
PD 11 15240 -11
PRA 15 203495 0
SCS 21 120765 2
Average 17 134391 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $245 million in ICPT’s case. First Bancorp (NYSE:FBP) is the most popular stock in this table. On the other hand PagerDuty, Inc. (NYSE:PD) is the least popular one with only 11 bullish hedge fund positions. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) 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 ICPT as the stock returned 63.3% 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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