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Did Hedge Funds Drop The Ball On Portola Pharmaceuticals Inc (PTLA)?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Portola Pharmaceuticals Inc (NASDAQ:PTLA) was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2018. PTLA investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 23 hedge funds in our database with PTLA holdings at the end of the previous quarter. Our calculations also showed that PTLA 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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Justin John Ferayorni - Tamarack Capital Management

We’re going to check out the new hedge fund action regarding Portola Pharmaceuticals Inc (NASDAQ:PTLA).

How have hedgies been trading Portola Pharmaceuticals Inc (NASDAQ:PTLA)?

At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -39% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in PTLA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PTLA_apr2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cadian Capital, managed by Eric Bannasch, holds the number one position in Portola Pharmaceuticals Inc (NASDAQ:PTLA). Cadian Capital has a $126.2 million position in the stock, comprising 5.9% of its 13F portfolio. Sitting at the No. 2 spot is Deerfield Management, led by James E. Flynn, holding a $32.7 million position; 1.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish consist of James Dondero’s Highland Capital Management, Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Because Portola Pharmaceuticals Inc (NASDAQ:PTLA) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds who sold off their full holdings in the third quarter. Intriguingly, Christopher James’s Partner Fund Management said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, totaling close to $122.5 million in stock, and Kelly Hampaul’s Everett Capital Advisors was right behind this move, as the fund sold off about $22.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Portola Pharmaceuticals Inc (NASDAQ:PTLA). We will take a look at HFF, Inc. (NYSE:HF), SPX FLOW, Inc. (NYSE:FLOW), GTT Communications Inc (NYSE:GTT), and NutriSystem Inc. (NASDAQ:NTRI). This group of stocks’ market valuations are closest to PTLA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HF 13 16140 3
FLOW 20 131015 7
GTT 15 350150 1
NTRI 29 273976 11
Average 19.25 192820 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $242 million in PTLA’s case. NutriSystem Inc. (NASDAQ:NTRI) is the most popular stock in this table. On the other hand HFF, Inc. (NYSE:HF) is the least popular one with only 13 bullish hedge fund positions. Portola Pharmaceuticals Inc (NASDAQ:PTLA) 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 PTLA as the stock returned 76.5% and outperformed the market by an even larger margin.

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

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