Did Hedge Funds Make The Right Call On Xenon Pharmaceuticals Inc (XENE) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Xenon Pharmaceuticals Inc (NASDAQ:XENE) based on that data and determine whether they were really smart about the stock.

Is Xenon Pharmaceuticals Inc (NASDAQ:XENE) undervalued? Prominent investors were getting more bullish. The number of long hedge fund bets went up by 6 in recent months. Our calculations also showed that XENE 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. 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. With all of this in mind let’s check out the key hedge fund action surrounding Xenon Pharmaceuticals Inc (NASDAQ:XENE).

How have hedgies been trading Xenon Pharmaceuticals Inc (NASDAQ:XENE)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XENE 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.

Is XENE A Good Stock To Buy?

The largest stake in Xenon Pharmaceuticals Inc (NASDAQ:XENE) was held by Avoro Capital Advisors (venBio Select Advisor), which reported holding $31.4 million worth of stock at the end of September. It was followed by Biotechnology Value Fund / BVF Inc with a $30.3 million position. Other investors bullish on the company included Adage Capital Management, Consonance Capital Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to Xenon Pharmaceuticals Inc (NASDAQ:XENE), around 6.63% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, setting aside 3.45 percent of its 13F equity portfolio to XENE.

As aggregate interest increased, key money managers have jumped into Xenon Pharmaceuticals Inc (NASDAQ:XENE) headfirst. Consonance Capital Management, managed by Mitchell Blutt, assembled the biggest position in Xenon Pharmaceuticals Inc (NASDAQ:XENE). Consonance Capital Management had $22.4 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also initiated a $7.1 million position during the quarter. The following funds were also among the new XENE investors: Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Richard Driehaus’s Driehaus Capital, and Ken Greenberg and David Kim’s Ghost Tree Capital.

Let’s also examine hedge fund activity in other stocks similar to Xenon Pharmaceuticals Inc (NASDAQ:XENE). We will take a look at Maverix Metals Inc. (NYSE:MMX), Byline Bancorp, Inc. (NYSE:BY), Verso Corporation (NYSE:VRS), and Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX). This group of stocks’ market values resemble XENE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MMX 3 12394 1
BY 10 10976 0
VRS 20 92202 -2
CPRX 20 79699 1
Average 13.25 48818 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $218 million in XENE’s case. Verso Corporation (NYSE:VRS) is the most popular stock in this table. On the other hand Maverix Metals Inc. (NYSE:MMX) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Xenon Pharmaceuticals Inc (NASDAQ:XENE) 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 XENE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XENE were disappointed as the stock returned 10.6% 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.