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Did Hedge Funds Make The Right Call On Eiger BioPharmaceuticals, Inc. (EIGR) ?

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 Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) a buy right now? Hedge funds were turning bullish. The number of long hedge fund bets advanced by 2 recently. Our calculations also showed that EIGR 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.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

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. Now let’s take a look at the fresh hedge fund action regarding Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR).

What have hedge funds been doing with Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EIGR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, 683 Capital Partners held the most valuable stake in Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), which was worth $13.9 million at the end of the third quarter. On the second spot was Vivo Capital which amassed $12.2 million worth of shares. Citadel Investment Group, Cormorant Asset Management, and Mangrove Partners 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 P.A.W. CAPITAL PARTNERS allocated the biggest weight to Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), around 3.3% of its 13F portfolio. Soleus Capital is also relatively very bullish on the stock, designating 3.21 percent of its 13F equity portfolio to EIGR.

Consequently, key hedge funds have jumped into Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) headfirst. Suvretta Capital Management, managed by Aaron Cowen, initiated the largest position in Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR). Suvretta Capital Management had $1.1 million invested in the company at the end of the quarter. Adam Usdan’s Trellus Management Company also made a $1.1 million investment in the stock during the quarter. The following funds were also among the new EIGR investors: Travis Cocke’s Voss Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Cliff Asness’s AQR Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR). These stocks are Mallinckrodt Public Limited Company (NYSE:MNK), BRT Apartments Corp (NYSE:BRT), Oasis Midstream Partners LP (NASDAQ:OMP), and Immersion Corporation (NASDAQ:IMMR). This group of stocks’ market caps are closest to EIGR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MNK 18 17899 -2
BRT 6 9850 2
OMP 3 2880 -1
IMMR 11 64426 -3
Average 9.5 23764 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $65 million in EIGR’s case. Mallinckrodt Public Limited Company (NYSE:MNK) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NASDAQ:OMP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) 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 EIGR as the stock returned 41.2% 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.