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Did Hedge Funds Make The Right Call On Innoviva, Inc. (INVA)?

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

Innoviva, Inc. (NASDAQ:INVA) 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 the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Atrion Corporation (NASDAQ:ATRI), Tri Pointe Group Inc (NYSE:TPH), and Masonite International Corp (NYSE:DOOR) to gather more data points. Our calculations also showed that INVA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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. Now we’re going to take a peek at the new hedge fund action regarding Innoviva, Inc. (NASDAQ:INVA).

Hedge fund activity in Innoviva, Inc. (NASDAQ:INVA)

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in INVA a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Innoviva, Inc. (NASDAQ:INVA), which was worth $96.5 million at the end of the third quarter. On the second spot was Sarissa Capital Management which amassed $73.4 million worth of shares. Antara Capital, Arrowstreet Capital, and D E Shaw 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 Sarissa Capital Management allocated the biggest weight to Innoviva, Inc. (NASDAQ:INVA), around 9.36% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 2.02 percent of its 13F equity portfolio to INVA.

Judging by the fact that Innoviva, Inc. (NASDAQ:INVA) has witnessed falling interest from the smart money, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely by the end of the first quarter. Interestingly, Andre F. Perold’s HighVista Strategies dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $2.7 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also sold off its stock, about $0.3 million worth. These transactions are interesting, as aggregate 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 Innoviva, Inc. (NASDAQ:INVA). We will take a look at Atrion Corporation (NASDAQ:ATRI), Tri Pointe Group Inc (NYSE:TPH), Masonite International Corp (NYSE:DOOR), and Grupo Simec S.A.B. de C.V. (NYSE:SIM). This group of stocks’ market values are similar to INVA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATRI 12 68214 -3
TPH 27 142074 -5
DOOR 26 271479 5
SIM 1 1807 0
Average 16.5 120894 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $252 million in INVA’s case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Innoviva, Inc. (NASDAQ:INVA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 17.1 percentage points. Unfortunately INVA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on INVA were disappointed as the stock returned 18.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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