Did Hedge Funds Make The Right Call On Heron Therapeutics Inc (HRTX) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Heron Therapeutics Inc (NASDAQ:HRTX) and determine whether the smart money was really smart about this stock.

Heron Therapeutics Inc (NASDAQ:HRTX) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of March. At the end of this article we will also compare HRTX to other stocks including Marcus & Millichap Inc (NYSE:MMI), Viper Energy Partners LP (NASDAQ:VNOM), and Pretium Resources Inc (NYSE:PVG) to get a better sense of its popularity.

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

According to most investors, hedge funds are seen as slow, outdated investment vehicles of the past. While there are over 8000 funds trading today, Our experts choose to focus on the crème de la crème of this club, approximately 850 funds. These money managers command bulk of the smart money’s total asset base, and by observing their inimitable picks, Insider Monkey has found numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year 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 .

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 look at the new hedge fund action encompassing Heron Therapeutics Inc (NASDAQ:HRTX).

How are hedge funds trading Heron Therapeutics Inc (NASDAQ:HRTX)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HRTX over the last 18 quarters. 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 HRTX A Good Stock To Buy?

Among these funds, Baker Bros. Advisors held the most valuable stake in Heron Therapeutics Inc (NASDAQ:HRTX), which was worth $70.7 million at the end of the third quarter. On the second spot was Tang Capital Management which amassed $34 million worth of shares. Partner Fund Management, D E Shaw, and Citadel Investment Group 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 Tang Capital Management allocated the biggest weight to Heron Therapeutics Inc (NASDAQ:HRTX), around 4.78% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, setting aside 2.39 percent of its 13F equity portfolio to HRTX.

Judging by the fact that Heron Therapeutics Inc (NASDAQ:HRTX) has faced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their entire stakes heading into Q4. Interestingly, Roberto Mignone’s Bridger Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $40.5 million in stock, and Farallon Capital was right behind this move, as the fund dropped about $20.6 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Heron Therapeutics Inc (NASDAQ:HRTX). We will take a look at Marcus & Millichap Inc (NYSE:MMI), Viper Energy Partners LP (NASDAQ:VNOM), Pretium Resources Inc (NYSE:PVG), and Addus Homecare Corporation (NASDAQ:ADUS). This group of stocks’ market values are closest to HRTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MMI 9 83327 -4
VNOM 11 29548 -5
PVG 25 66926 1
ADUS 15 65282 -2
Average 15 61271 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $223 million in HRTX’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand Marcus & Millichap Inc (NYSE:MMI) is the least popular one with only 9 bullish hedge fund positions. Heron Therapeutics Inc (NASDAQ:HRTX) 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 HRTX as the stock returned 45.6% 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.