Did Hedge Funds Make The Right Call On Aurinia Pharmaceuticals Inc (AUPH) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAurinia Pharmaceuticals Inc (NASDAQ:AUPH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) an attractive investment right now? Prominent investors were taking an optimistic view. The number of long hedge fund bets increased by 7 recently. Our calculations also showed that AUPH 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.

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. Keeping this in mind let’s go over the recent hedge fund action regarding Aurinia Pharmaceuticals Inc (NASDAQ:AUPH).

What have hedge funds been doing with Aurinia Pharmaceuticals Inc (NASDAQ:AUPH)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in AUPH a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Healthcor Management LP held the most valuable stake in Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), which was worth $141.7 million at the end of the third quarter. On the second spot was Consonance Capital Management which amassed $100.3 million worth of shares. Point72 Asset Management, Avoro Capital Advisors (venBio Select Advisor), and Baker Bros. Advisors 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 Consonance Capital Management allocated the biggest weight to Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), around 7.47% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, designating 6.06 percent of its 13F equity portfolio to AUPH.

Consequently, key money managers have been driving this bullishness. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, established the largest position in Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). Avoro Capital Advisors (venBio Select Advisor) had $25 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also made a $11.2 million investment in the stock during the quarter. The following funds were also among the new AUPH investors: Phill Gross and Robert Atchinson’s Adage Capital Management, D. E. Shaw’s D E Shaw, and Noam Gottesman’s GLG Partners.

Let’s go over hedge fund activity in other stocks similar to Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). These stocks are Ambarella Inc (NASDAQ:AMBA), Sabre Corporation (NASDAQ:SABR), ABM Industries, Inc. (NYSE:ABM), and Columbia Financial, Inc. (NASDAQ:CLBK). This group of stocks’ market valuations match AUPH’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $483 million in AUPH’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately AUPH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AUPH were disappointed as the stock returned 12% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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