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Did Hedge Funds Make The Right Call On Ultragenyx Pharmaceutical Inc (RARE) ?

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 thoughtUltragenyx Pharmaceutical Inc (NASDAQ:RARE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Regal Beloit Corporation (NYSE:RBC), Freshpet Inc (NASDAQ:FRPT), and Taubman Centers, Inc. (NYSE:TCO) to gather more data points. Our calculations also showed that RARE 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.

Steven Cohen

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Keeping this in mind let’s view the recent hedge fund action encompassing Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).

How are hedge funds trading Ultragenyx Pharmaceutical Inc (NASDAQ:RARE)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in RARE a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is RARE A Good Stock To Buy?

The largest stake in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) was held by Citadel Investment Group, which reported holding $72.3 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $72 million position. Other investors bullish on the company included Rock Springs Capital Management, D E Shaw, and EcoR1 Capital. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), around 1.72% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, dishing out 1.37 percent of its 13F equity portfolio to RARE.

Due to the fact that Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few money managers that elected to cut their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at close to $5 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund said goodbye to about $0.8 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). We will take a look at Regal Beloit Corporation (NYSE:RBC), Freshpet Inc (NASDAQ:FRPT), Taubman Centers, Inc. (NYSE:TCO), and Gildan Activewear Inc (NYSE:GIL). All of these stocks’ market caps match RARE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBC 19 204663 -5
FRPT 24 141032 4
TCO 38 478517 12
GIL 22 274827 0
Average 25.75 274760 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $236 million in RARE’s case. Taubman Centers, Inc. (NYSE:TCO) is the most popular stock in this table. On the other hand Regal Beloit Corporation (NYSE:RBC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is even less popular than RBC. Hedge funds clearly dropped the ball on RARE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 RARE as the stock returned 83.3% 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.