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Did Hedge Funds Make The Right Call On Kadmon Holdings, Inc. (KDMN) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtKadmon Holdings, Inc. (NYSE:KDMN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Kadmon Holdings, Inc. (NYSE:KDMN) ready to rally soon? Prominent investors were taking a bullish view. The number of bullish hedge fund positions went up by 3 lately. Our calculations also showed that KDMN 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the latest hedge fund action surrounding Kadmon Holdings, Inc. (NYSE:KDMN).

How are hedge funds trading Kadmon Holdings, Inc. (NYSE:KDMN)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KDMN over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KDMN A Good Stock To Buy?

Among these funds, Perceptive Advisors held the most valuable stake in Kadmon Holdings, Inc. (NYSE:KDMN), which was worth $65.8 million at the end of the third quarter. On the second spot was Consonance Capital Management which amassed $65.4 million worth of shares. Vivo Capital, Third Point, 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 Consonance Capital Management allocated the biggest weight to Kadmon Holdings, Inc. (NYSE:KDMN), around 4.87% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, designating 4.79 percent of its 13F equity portfolio to KDMN.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Acuta Capital Partners, managed by Manfred Yu, established the biggest position in Kadmon Holdings, Inc. (NYSE:KDMN). Acuta Capital Partners had $9.9 million invested in the company at the end of the quarter. Neil Shahrestani’s Ikarian Capital also initiated a $5.5 million position during the quarter. The other funds with new positions in the stock are Michael Castor’s Sio Capital, Vishal Saluja and Pham Quang’s Endurant Capital Management, and D. E. Shaw’s D E Shaw.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Kadmon Holdings, Inc. (NYSE:KDMN) but similarly valued. We will take a look at Systemax Inc. (NYSE:SYX), Central Securities Corporation (NYSE:CET), Hyster-Yale Materials Handling Inc (NYSE:HY), and Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). This group of stocks’ market caps are closest to KDMN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYX 11 14658 -2
CET 2 11637 1
HY 10 27150 1
RYTM 9 186440 -1
Average 8 59971 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $307 million in KDMN’s case. Systemax Inc. (NYSE:SYX) is the most popular stock in this table. On the other hand Central Securities Corporation (NYSE:CET) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Kadmon Holdings, Inc. (NYSE:KDMN) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on KDMN, though not to the same extent, as the stock returned 22.2% in Q2 and outperformed the market as well.

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