Did Hedge Funds Make The Right Call On Collegium Pharmaceutical Inc (COLL) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Collegium Pharmaceutical Inc (NASDAQ:COLL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Collegium Pharmaceutical Inc (NASDAQ:COLL) a bargain? The best stock pickers were taking an optimistic view. The number of long hedge fund positions went up by 2 recently. Our calculations also showed that COLL 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

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 glance at the fresh hedge fund action regarding Collegium Pharmaceutical Inc (NASDAQ:COLL).

How are hedge funds trading Collegium Pharmaceutical Inc (NASDAQ:COLL)?

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 11% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in COLL a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Camber Capital Management was the largest shareholder of Collegium Pharmaceutical Inc (NASDAQ:COLL), with a stake worth $32.7 million reported as of the end of September. Trailing Camber Capital Management was Renaissance Technologies, which amassed a stake valued at $25.9 million. Perceptive Advisors, Rubric Capital Management, and Rock Springs 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 Rubric Capital Management allocated the biggest weight to Collegium Pharmaceutical Inc (NASDAQ:COLL), around 3.13% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, designating 1.95 percent of its 13F equity portfolio to COLL.

As one would reasonably expect, some big names have jumped into Collegium Pharmaceutical Inc (NASDAQ:COLL) headfirst. Camber Capital Management, managed by Stephen DuBois, created the most outsized position in Collegium Pharmaceutical Inc (NASDAQ:COLL). Camber Capital Management had $32.7 million invested in the company at the end of the quarter. David Rosen’s Rubric Capital Management also made a $19.8 million investment in the stock during the quarter. The following funds were also among the new COLL investors: Ken Griffin’s Citadel Investment Group, Nick Thakore’s Diametric Capital, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Collegium Pharmaceutical Inc (NASDAQ:COLL) but similarly valued. These stocks are AVROBIO, Inc. (NASDAQ:AVRO), Big Lots, Inc. (NYSE:BIG), Portola Pharmaceuticals Inc (NASDAQ:PTLA), and Compugen Ltd. (NASDAQ:CGEN). All of these stocks’ market caps match COLL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVRO 17 168056 3
BIG 15 75414 -9
PTLA 17 61104 -10
CGEN 8 44171 2
Average 14.25 87186 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $170 million in COLL’s case. AVROBIO, Inc. (NASDAQ:AVRO) is the most popular stock in this table. On the other hand Compugen Ltd. (NASDAQ:CGEN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Collegium Pharmaceutical Inc (NASDAQ:COLL) 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately COLL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COLL were disappointed as the stock returned 4.8% since the end of the first quarter 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 most of these stocks already outperformed the market in 2020.

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