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Did Hedge Funds Drop The Ball On Karyopharm Therapeutics Inc (KPTI)?

Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Is Karyopharm Therapeutics Inc (NASDAQ:KPTI) a bargain? Money managers are getting less bullish. The number of long hedge fund bets went down by 2 lately. Our calculations also showed that KPTI isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

Samuel Isaly Orbimed Advisors

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the recent hedge fund action regarding Karyopharm Therapeutics Inc (NASDAQ:KPTI).

Hedge fund activity in Karyopharm Therapeutics Inc (NASDAQ:KPTI)

Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the first quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in KPTI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

No of Hedge Funds with KPTI Positions

The largest stake in Karyopharm Therapeutics Inc (NASDAQ:KPTI) was held by Consonance Capital Management, which reported holding $34.8 million worth of stock at the end of March. It was followed by Palo Alto Investors with a $31.5 million position. Other investors bullish on the company included OrbiMed Advisors, Point72 Asset Management, and Citadel Investment Group.

Due to the fact that Karyopharm Therapeutics Inc (NASDAQ:KPTI) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Anand Parekh’s Alyeska Investment Group sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $2.9 million in stock. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also dropped its stock, about $1.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Karyopharm Therapeutics Inc (NASDAQ:KPTI). These stocks are Kimball Electronics Inc (NASDAQ:KE), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Avid Technology, Inc. (NASDAQ:AVID), and Tower International Inc (NYSE:TOWR). This group of stocks’ market caps are similar to KPTI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KE 9 24740 -1
BCRX 14 140524 -5
AVID 13 57223 -2
TOWR 9 32893 -4
Average 11.25 63845 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $116 million in KPTI’s case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Kimball Electronics Inc (NASDAQ:KE) is the least popular one with only 9 bullish hedge fund positions. Karyopharm Therapeutics Inc (NASDAQ:KPTI) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on KPTI as the stock returned 60.6% during the third quarter 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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