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Hedge Funds Are Dumping Spectrum Pharmaceuticals, Inc. (SPPI)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).

Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) shareholders have witnessed a decrease in hedge fund interest recently. SPPI was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with SPPI positions at the end of the previous quarter. Our calculations also showed that SPPI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the recent hedge fund action surrounding Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).

What does smart money think about Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SPPI over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), with a stake worth $22.9 million reported as of the end of September. Trailing Renaissance Technologies was Sio Capital, which amassed a stake valued at $5.1 million. Fisher Asset Management, Two Sigma Advisors, and PDT Partners 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 Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI), around 1.65% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to SPPI.

Since Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies that slashed their entire stakes in the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $2.7 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI). We will take a look at ATN International, Inc. (NASDAQ:ATNI), Antero Resources Corporation (NYSE:AR), Century Communities, Inc (NYSE:CCS), and Luminex Corporation (NASDAQ:LMNX). This group of stocks’ market valuations are similar to SPPI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATNI 9 65615 0
AR 26 354639 -4
CCS 23 158792 6
LMNX 14 151826 -3
Average 18 182718 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $32 million in SPPI’s case. Antero Resources Corporation (NYSE:AR) is the most popular stock in this table. On the other hand ATN International, Inc. (NASDAQ:ATNI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) is even less popular than ATNI. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on SPPI, though not to the same extent, as the stock returned 8.2% during the fourth quarter (through 11/30) and outperformed the market as well.

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

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