Did Hedge Funds Make The Right Call On GW Pharmaceuticals plc (GWPH) ?

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 GW Pharmaceuticals plc (NASDAQ:GWPH) based on that data and determine whether they were really smart about the stock.

Is GW Pharmaceuticals plc (NASDAQ:GWPH) an outstanding investment now? Money managers were selling. The number of bullish hedge fund positions shrunk by 3 lately. Our calculations also showed that GWPH 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 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 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.

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 surrounding GW Pharmaceuticals plc (NASDAQ:GWPH).

How are hedge funds trading GW Pharmaceuticals plc (NASDAQ:GWPH)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in GWPH a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in GW Pharmaceuticals plc (NASDAQ:GWPH), which was worth $85.6 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $39.4 million worth of shares. Baker Bros. Advisors, Woodline Partners, and Holocene 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 Parkman Healthcare Partners allocated the biggest weight to GW Pharmaceuticals plc (NASDAQ:GWPH), around 4.98% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 4.93 percent of its 13F equity portfolio to GWPH.

Due to the fact that GW Pharmaceuticals plc (NASDAQ:GWPH) has faced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds who were dropping their positions entirely last quarter. Intriguingly, Mitchell Blutt’s Consonance Capital Management dropped the biggest position of the 750 funds monitored by Insider Monkey, valued at about $63.2 million in stock. Renaissance Technologies, also dropped its stock, about $26.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as GW Pharmaceuticals plc (NASDAQ:GWPH) but similarly valued. These stocks are Schrodinger, Inc. (NASDAQ:SDGR), H&R Block, Inc. (NYSE:HRB), Murphy USA Inc. (NYSE:MUSA), and AMN Healthcare Services Inc (NYSE:AMN). This group of stocks’ market values resemble GWPH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SDGR 15 542132 15
HRB 19 177631 -11
MUSA 24 198115 -4
AMN 22 78978 12
Average 20 249214 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $249 million. That figure was $263 million in GWPH’s case. Murphy USA Inc. (NYSE:MUSA) is the most popular stock in this table. On the other hand Schrodinger, Inc. (NASDAQ:SDGR) is the least popular one with only 15 bullish hedge fund positions. GW Pharmaceuticals plc (NASDAQ:GWPH) is not the most popular stock in this group but hedge fund interest is still above 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 but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on GWPH as the stock returned 47% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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