Did Hedge Funds Make The Right Call On Insmed Incorporated (INSM)?

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 Insmed Incorporated (NASDAQ:INSM) and determine whether hedge funds skillfully traded this stock.

Is Insmed Incorporated (NASDAQ:INSM) a buy here? Prominent investors were getting less optimistic. The number of bullish hedge fund bets were trimmed by 5 lately. Our calculations also showed that INSM 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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 let’s take a peek at the latest hedge fund action regarding Insmed Incorporated (NASDAQ:INSM).

How have hedgies been trading Insmed Incorporated (NASDAQ:INSM)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in INSM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is INSM A Good Stock To Buy?

Among these funds, Palo Alto Investors held the most valuable stake in Insmed Incorporated (NASDAQ:INSM), which was worth $97.1 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $53.4 million worth of shares. Citadel Investment Group, Baker Bros. Advisors, 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 Palo Alto Investors allocated the biggest weight to Insmed Incorporated (NASDAQ:INSM), around 8.13% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, setting aside 1.73 percent of its 13F equity portfolio to INSM.

Seeing as Insmed Incorporated (NASDAQ:INSM) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds that slashed their positions entirely in the first quarter. Intriguingly, Albert Cha and Frank Kung’s Vivo Capital sold off the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $28.9 million in stock, and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management was right behind this move, as the fund cut about $19.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Insmed Incorporated (NASDAQ:INSM) but similarly valued. These stocks are Forward Air Corporation (NASDAQ:FWRD), Builders FirstSource, Inc. (NASDAQ:BLDR), Shake Shack Inc (NYSE:SHAK), and Adtalem Global Education Inc. (NYSE:ATGE). All of these stocks’ market caps are similar to INSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FWRD 17 78795 -3
BLDR 29 303590 -11
SHAK 22 393753 -3
ATGE 12 268581 -8
Average 20 261180 -6.25

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 $261 million. That figure was $358 million in INSM’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Adtalem Global Education Inc. (NYSE:ATGE) is the least popular one with only 12 bullish hedge fund positions. Insmed Incorporated (NASDAQ:INSM) 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 INSM as the stock returned 67.7% 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.