Did Hedge Funds Drop The Ball On Omeros Corporation (OMER) ?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about Omeros Corporation (NASDAQ:OMER).

Omeros Corporation (NASDAQ:OMER) was in 7 hedge funds’ portfolios at the end of the fourth quarter of 2018. OMER shareholders have witnessed a decrease in hedge fund sentiment of late. There were 8 hedge funds in our database with OMER positions at the end of the previous quarter. Our calculations also showed that omer isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Millennium Management, Catapult Capital Management

Let’s take a look at the new hedge fund action encompassing Omeros Corporation (NASDAQ:OMER).

What does the smart money think about Omeros Corporation (NASDAQ:OMER)?

At Q4’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards OMER over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with OMER Positions

More specifically, D E Shaw was the largest shareholder of Omeros Corporation (NASDAQ:OMER), with a stake worth $21.3 million reported as of the end of December. Trailing D E Shaw was Millennium Management, which amassed a stake valued at $12.4 million. Citadel Investment Group, Cormorant Asset Management, and OZ Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Omeros Corporation (NASDAQ:OMER) has experienced falling interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely by the end of the third quarter. Interestingly, Bihua Chen’s Cormorant Asset Management said goodbye to the largest investment of the 700 funds followed by Insider Monkey, totaling close to $24.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Omeros Corporation (NASDAQ:OMER) but similarly valued. We will take a look at Re/Max Holdings Inc (NYSE:RMAX), Omega Flex, Inc. (NASDAQ:OFLX), Synthorx, Inc. (NASDAQ:THOR), and Rayonier Advanced Materials Inc (NYSE:RYAM). All of these stocks’ market caps match OMER’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RMAX 5 46656 -5
OFLX 5 8298 1
THOR 5 300834 5
RYAM 19 102909 -4
Average 8.5 114674 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $40 million in OMER’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand Re/Max Holdings Inc (NYSE:RMAX) is the least popular one with only 5 bullish hedge fund positions. Omeros Corporation (NASDAQ:OMER) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on OMER as the stock returned 67.7% and outperformed the market by an even larger margin.

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