Did Hedge Funds Drop The Ball On Principia Biopharma Inc. (PRNB) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Principia Biopharma Inc. (NASDAQ:PRNB) based on that data and determine whether they were really smart about the stock.

Principia Biopharma Inc. (NASDAQ:PRNB) was in 21 hedge funds’ portfolios at the end of March. PRNB shareholders have witnessed an increase in hedge fund interest in recent months. There were 20 hedge funds in our database with PRNB positions at the end of the previous quarter. Our calculations also showed that PRNB isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a gander at the recent hedge fund action regarding Principia Biopharma Inc. (NASDAQ:PRNB).

What have hedge funds been doing with Principia Biopharma Inc. (NASDAQ:PRNB)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in PRNB a year ago. 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, Redmile Group was the largest shareholder of Principia Biopharma Inc. (NASDAQ:PRNB), with a stake worth $134.3 million reported as of the end of September. Trailing Redmile Group was Cormorant Asset Management, which amassed a stake valued at $124.7 million. Baker Bros. Advisors, Biotechnology Value Fund / BVF Inc, and Adage Capital Management 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 Samsara BioCapital allocated the biggest weight to Principia Biopharma Inc. (NASDAQ:PRNB), around 13.71% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, dishing out 8.76 percent of its 13F equity portfolio to PRNB.

Consequently, key hedge funds were leading the bulls’ herd. Consonance Capital Management, managed by Mitchell Blutt, created the biggest position in Principia Biopharma Inc. (NASDAQ:PRNB). Consonance Capital Management had $41 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $25.7 million position during the quarter. The following funds were also among the new PRNB investors: Michael Rockefeller and KarláKroeker’s Woodline Partners, Israel Englander’s Millennium Management, and Nick Thakore’s Diametric Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Principia Biopharma Inc. (NASDAQ:PRNB) but similarly valued. These stocks are Steven Madden, Ltd. (NASDAQ:SHOO), Varonis Systems Inc (NASDAQ:VRNS), TFI International Inc. (NYSE:TFII), and Outfront Media Inc. (REIT) (NYSE:OUT). This group of stocks’ market values resemble PRNB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHOO 18 58658 -4
VRNS 20 387926 2
TFII 12 41372 12
OUT 30 329476 -1
Average 20 204358 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $735 million in PRNB’s case. Outfront Media Inc. (REIT) (NYSE:OUT) is the most popular stock in this table. On the other hand TFI International Inc. (NYSE:TFII) is the least popular one with only 12 bullish hedge fund positions. Principia Biopharma Inc. (NASDAQ:PRNB) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on PRNB as the stock returned 49.3% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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