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 Sarepta Therapeutics Inc (NASDAQ:SRPT) and determine whether hedge funds skillfully traded this stock.
Sarepta Therapeutics Inc (NASDAQ:SRPT) investors should be aware of a decrease in support from the world’s most elite money managers lately. Our calculations also showed that SRPT 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
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 analyze the latest hedge fund action encompassing Sarepta Therapeutics Inc (NASDAQ:SRPT).
How have hedgies been trading Sarepta Therapeutics Inc (NASDAQ:SRPT)?
Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SRPT over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Phill Gross and Robert Atchinson’s Adage Capital Management has the biggest position in Sarepta Therapeutics Inc (NASDAQ:SRPT), worth close to $198.1 million, amounting to 0.6% of its total 13F portfolio. On Adage Capital Management’s heels is Behzad Aghazadeh of Avoro Capital Advisors (venBio Select Advisor), with a $155 million position; 5.2% of its 13F portfolio is allocated to the stock. Other peers that hold long positions comprise Samuel Isaly’s OrbiMed Advisors, Mitchell Blutt’s Consonance Capital Management and Stephen DuBois’s Camber Capital Management. In terms of the portfolio weights assigned to each position Logos Capital allocated the biggest weight to Sarepta Therapeutics Inc (NASDAQ:SRPT), around 6.97% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, setting aside 6.96 percent of its 13F equity portfolio to SRPT.
Seeing as Sarepta Therapeutics Inc (NASDAQ:SRPT) has experienced falling interest from the smart money, we can see that there lies a certain “tier” of fund managers who were dropping their entire stakes in the first quarter. Interestingly, Eric Bannasch’s Cadian Capital cut the largest stake of all the hedgies followed by Insider Monkey, totaling an estimated $71 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $44.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 9 funds in the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sarepta Therapeutics Inc (NASDAQ:SRPT) but similarly valued. These stocks are Brookfield Renewable Partners L.P. (NYSE:BEP), E*TRADE Financial Corporation (NASDAQ:ETFC), Dropbox, Inc. (NASDAQ:DBX), and CNH Industrial NV (NYSE:CNHI). This group of stocks’ market valuations match SRPT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BEP | 3 | 18840 | -1 |
| ETFC | 37 | 941990 | -11 |
| DBX | 44 | 985316 | -2 |
| CNHI | 17 | 156917 | 1 |
| Average | 25.25 | 525766 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $906 million in SRPT’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 3 bullish hedge fund positions. Sarepta Therapeutics Inc (NASDAQ:SRPT) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SRPT as the stock returned 63.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Sarepta Therapeutics Inc. (NASDAQ:SRPT)
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Disclosure: None. This article was originally published at Insider Monkey.
