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Did Hedge Funds Make The Right Call On Ascendis Pharma A/S (ASND) ?

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 Ascendis Pharma A/S (NASDAQ:ASND) based on that data and determine whether they were really smart about the stock.

Ascendis Pharma A/S (NASDAQ:ASND) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. ASND shareholders have witnessed a decrease in hedge fund sentiment of late. There were 38 hedge funds in our database with ASND holdings at the end of the previous quarter. Our calculations also showed that ASND 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action regarding Ascendis Pharma A/S (NASDAQ:ASND).

What does smart money think about Ascendis Pharma A/S (NASDAQ:ASND)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in ASND a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is ASND A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Peter Kolchinsky’s RA Capital Management has the number one position in Ascendis Pharma A/S (NASDAQ:ASND), worth close to $553.5 million, corresponding to 17.5% of its total 13F portfolio. Sitting at the No. 2 spot is Julian Baker and Felix Baker of Baker Bros. Advisors, with a $381.8 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Samuel Isaly’s OrbiMed Advisors, Albert Cha and Frank Kung’s Vivo Capital and Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor). In terms of the portfolio weights assigned to each position Vivo Capital allocated the biggest weight to Ascendis Pharma A/S (NASDAQ:ASND), around 20.43% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 17.48 percent of its 13F equity portfolio to ASND.

Due to the fact that Ascendis Pharma A/S (NASDAQ:ASND) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds that slashed their positions entirely in the first quarter. It’s worth mentioning that Michel Massoud’s Melqart Asset Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $16.1 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also cut its stock, about $7.7 million worth. These transactions are important to note, as total hedge fund interest fell by 5 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Ascendis Pharma A/S (NASDAQ:ASND). We will take a look at Douglas Emmett, Inc. (NYSE:DEI), China Southern Airlines Co Ltd (NYSE:ZNH), James Hardie Industries plc (NYSE:JHX), and News Corp (NASDAQ:NWS). This group of stocks’ market caps match ASND’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DEI 22 526330 3
ZNH 2 7964 -1
JHX 4 6976 1
NWS 13 28126 6
Average 10.25 142349 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $2201 million in ASND’s case. Douglas Emmett, Inc. (NYSE:DEI) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Ascendis Pharma A/S (NASDAQ:ASND) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ASND as the stock returned 31.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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