Did Hedge Funds Make The Right Call On Viking Therapeutics, Inc. (VKTX) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Viking Therapeutics, Inc. (NASDAQ:VKTX) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Viking Therapeutics, Inc. (NASDAQ:VKTX) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. VKTX was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with VKTX positions at the end of the previous quarter. Our calculations also showed that VKTX 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.

Michael Castor Sio Capital

Michael Castor of Sio Capital

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 take a look at the new hedge fund action surrounding Viking Therapeutics, Inc. (NASDAQ:VKTX).

How are hedge funds trading Viking Therapeutics, Inc. (NASDAQ:VKTX)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in VKTX a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Park West Asset Management held the most valuable stake in Viking Therapeutics, Inc. (NASDAQ:VKTX), which was worth $7.5 million at the end of the third quarter. On the second spot was Sio Capital which amassed $3.5 million worth of shares. Sphera Global Healthcare Fund, DAFNA Capital Management, and Baker Bros. Advisors 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 Sio Capital allocated the biggest weight to Viking Therapeutics, Inc. (NASDAQ:VKTX), around 1.18% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, designating 0.88 percent of its 13F equity portfolio to VKTX.

As aggregate interest increased, specific money managers have been driving this bullishness. Sphera Global Healthcare Fund, managed by Doron Breen and Mori Arkin, initiated the most valuable position in Viking Therapeutics, Inc. (NASDAQ:VKTX). Sphera Global Healthcare Fund had $2.8 million invested in the company at the end of the quarter. Henrik Rhenman’s Rhenman & Partners Asset Management also initiated a $0.9 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Mike Vranos’s Ellington, and Minhua Zhang’s Weld Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Viking Therapeutics, Inc. (NASDAQ:VKTX). We will take a look at Tutor Perini Corp (NYSE:TPC), MidWestOne Financial Group, Inc. (NASDAQ:MOFG), Chesapeake Energy Corporation (NYSE:CHK), and Signet Jewelers Limited (NYSE:SIG). This group of stocks’ market values match VKTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPC 10 12342 -5
MOFG 9 10690 2
CHK 15 12034 -4
SIG 25 72355 3
Average 14.75 26855 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $25 million in VKTX’s case. Signet Jewelers Limited (NYSE:SIG) is the most popular stock in this table. On the other hand MidWestOne Financial Group, Inc. (NASDAQ:MOFG) is the least popular one with only 9 bullish hedge fund positions. Viking Therapeutics, Inc. (NASDAQ:VKTX) 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on VKTX as the stock returned 48.5% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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