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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Scholar Rock Holding Corporation (NASDAQ:SRRK).
Is Scholar Rock Holding Corporation (NASDAQ:SRRK) a splendid investment today? Investors who are in the know are getting less optimistic. The number of long hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that SRRK 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). SRRK was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. There were 7 hedge funds in our database with SRRK positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Scholar Rock Holding Corporation (NASDAQ:SRRK).
What have hedge funds been doing with Scholar Rock Holding Corporation (NASDAQ:SRRK)?
Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRRK over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Scholar Rock Holding Corporation (NASDAQ:SRRK) was held by Redmile Group, which reported holding $35 million worth of stock at the end of September. It was followed by Point72 Asset Management with a $4.2 million position. Other investors bullish on the company included Moore Global Investments, Citadel Investment Group, and Royce & Associates. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Scholar Rock Holding Corporation (NASDAQ:SRRK), around 0.98% of its 13F portfolio. Moore Global Investments is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to SRRK.
Judging by the fact that Scholar Rock Holding Corporation (NASDAQ:SRRK) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds who sold off their full holdings last quarter. Interestingly, Israel Englander’s Millennium Management cut the biggest position of the 750 funds tracked by Insider Monkey, comprising about $0.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund sold off about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Scholar Rock Holding Corporation (NASDAQ:SRRK). These stocks are Replimune Group, Inc. (NASDAQ:REPL), Clearwater Paper Corp (NYSE:CLW), American Public Education, Inc. (NASDAQ:APEI), and The First Bancshares, Inc. (MS) (NASDAQ:FBMS). All of these stocks’ market caps resemble SRRK’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $41 million in SRRK’s case. American Public Education, Inc. (NASDAQ:APEI) is the most popular stock in this table. On the other hand Clearwater Paper Corp (NYSE:CLW) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Scholar Rock Holding Corporation (NASDAQ:SRRK) is even less popular than CLW. Hedge funds clearly dropped the ball on SRRK 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on SRRK as the stock returned 51.9% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.