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Did Hedge Funds Drop The Ball On Momenta Pharmaceuticals, Inc. (MNTA) ?

Is Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) a safe investment right now? Prominent investors are becoming less confident. The number of long hedge fund bets shrunk by 2 in recent months. Our calculations also showed that MNTA 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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. We’re going to check out the recent hedge fund action surrounding Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA).

How have hedgies been trading Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MNTA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Camber Capital Management was the largest shareholder of Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), with a stake worth $45.4 million reported as of the end of September. Trailing Camber Capital Management was Perceptive Advisors, which amassed a stake valued at $37.6 million. Point72 Asset Management, D E Shaw, and Palo Alto Investors 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 Camber Capital Management allocated the biggest weight to Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), around 2.39% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, dishing out 1.52 percent of its 13F equity portfolio to MNTA.

Due to the fact that Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) has faced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that elected to cut their positions entirely in the third quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.3 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund cut about $0.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) but similarly valued. We will take a look at Stamps.com Inc. (NASDAQ:STMP), Loral Space & Communications Ltd. (NASDAQ:LORL), Audentes Therapeutics, Inc. (NASDAQ:BOLD), and Sykes Enterprises, Incorporated (NASDAQ:SYKE). This group of stocks’ market values resemble MNTA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STMP 17 306736 -2
LORL 18 605943 2
BOLD 25 486348 -2
SYKE 13 71749 -2
Average 18.25 367694 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $230 million in MNTA’s case. Audentes Therapeutics, Inc. (NASDAQ:BOLD) is the most popular stock in this table. On the other hand Sykes Enterprises, Incorporated (NASDAQ:SYKE) is the least popular one with only 13 bullish hedge fund positions. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) 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 MNTA as the stock returned 29.6% 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.

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