Did Hedge Funds Make The Right Call On Radius Health Inc (RDUS)?

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 Radius Health Inc (NASDAQ:RDUS) and determine whether hedge funds skillfully traded this stock.

Is Radius Health Inc (NASDAQ:RDUS) ready to rally soon? Hedge funds were in a bullish mood. The number of bullish hedge fund positions increased by 1 lately. Our calculations also showed that RDUS 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.

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. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a peek at the recent hedge fund action encompassing Radius Health Inc (NASDAQ:RDUS).

What does smart money think about Radius Health Inc (NASDAQ:RDUS)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RDUS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Radius Health Inc (NASDAQ:RDUS) was held by Farallon Capital, which reported holding $26.7 million worth of stock at the end of September. It was followed by Rubric Capital Management with a $16 million position. Other investors bullish on the company included Rock Springs Capital Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Rubric Capital Management allocated the biggest weight to Radius Health Inc (NASDAQ:RDUS), around 2.52% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, dishing out 1.69 percent of its 13F equity portfolio to RDUS.

As aggregate interest increased, key money managers have been driving this bullishness. Tang Capital Management, managed by Kevin C. Tang, initiated the most outsized position in Radius Health Inc (NASDAQ:RDUS). Tang Capital Management had $3.9 million invested in the company at the end of the quarter. Henrik Rhenman’s Rhenman & Partners Asset Management also made a $3.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka’s AlphaCrest Capital Management and Mike Vranos’s Ellington.

Let’s go over hedge fund activity in other stocks similar to Radius Health Inc (NASDAQ:RDUS). We will take a look at Revolve Group, Inc. (NYSE:RVLV), Inseego Corp. (NASDAQ:INSG), BELLUS Health Inc. (NASDAQ:BLU), and Translate Bio, Inc. (NASDAQ:TBIO). This group of stocks’ market values match RDUS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RVLV 10 11180 -1
INSG 12 18676 4
BLU 14 156516 -2
TBIO 7 224195 -2
Average 10.75 102642 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $111 million in RDUS’s case. BELLUS Health Inc. (NASDAQ:BLU) is the most popular stock in this table. On the other hand Translate Bio, Inc. (NASDAQ:TBIO) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Radius Health Inc (NASDAQ:RDUS) 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 and still beat the market by 15.5 percentage points. Unfortunately RDUS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RDUS were disappointed as the stock returned 4.8% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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