Did Hedge Funds Make The Right Call On Emergent Biosolutions Inc (EBS) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Emergent Biosolutions Inc (NYSE:EBS) and determine whether hedge funds skillfully traded this stock.

Is Emergent Biosolutions Inc (NYSE:EBS) an attractive investment today? Investors who are in the know were getting more optimistic. The number of long hedge fund bets advanced by 5 in recent months. Our calculations also showed that EBS 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). EBS was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with EBS holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are perceived as underperforming, outdated financial vehicles of years past. While there are greater than 8000 funds trading today, Our researchers choose to focus on the top tier of this club, approximately 850 funds. It is estimated that this group of investors handle most of the hedge fund industry’s total asset base, and by shadowing their top equity investments, Insider Monkey has formulated numerous investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. With all of this in mind we’re going to view the fresh hedge fund action surrounding Emergent Biosolutions Inc (NYSE:EBS).

How are hedge funds trading Emergent Biosolutions Inc (NYSE:EBS)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in EBS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EBS A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Emergent Biosolutions Inc (NYSE:EBS), which was worth $36 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $33.9 million worth of shares. Royce & Associates, Citadel Investment Group, and Portolan 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 Portolan Capital Management allocated the biggest weight to Emergent Biosolutions Inc (NYSE:EBS), around 1.14% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.46 percent of its 13F equity portfolio to EBS.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Portolan Capital Management, managed by George McCabe, assembled the biggest position in Emergent Biosolutions Inc (NYSE:EBS). Portolan Capital Management had $7.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $3.2 million position during the quarter. The other funds with brand new EBS positions are Sahm Adrangi’s Kerrisdale Capital, Noam Gottesman’s GLG Partners, and Minhua Zhang’s Weld Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Emergent Biosolutions Inc (NYSE:EBS) but similarly valued. We will take a look at NIO Inc. (NYSE:NIO), frontdoor, inc. (NASDAQ:FTDR), Polaris Inc. (NYSE:PII), and Selective Insurance Group (NASDAQ:SIGI). This group of stocks’ market valuations resemble EBS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NIO 16 29111 0
FTDR 33 552969 -4
PII 24 157435 -2
SIGI 15 70570 -10
Average 22 202521 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $114 million in EBS’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Selective Insurance Group (NASDAQ:SIGI) is the least popular one with only 15 bullish hedge fund positions. Emergent Biosolutions Inc (NYSE:EBS) is not the least popular stock in this group but hedge fund interest is still below 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 and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on EBS as the stock returned 63.8% since the end of March and outperformed the market by an even larger margin.

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