We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) and determine whether hedge funds skillfully traded this stock.
Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) investors should pay attention to an increase in hedge fund sentiment recently. Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KNSA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
If you’d ask most shareholders, hedge funds are perceived as slow, old investment vehicles of the past. While there are more than 8000 funds in operation today, Our researchers look at the moguls of this group, about 850 funds. Most estimates calculate that this group of people have their hands on the majority of all hedge funds’ total capital, and by paying attention to their finest equity investments, Insider Monkey has unsheathed many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA).
How are hedge funds trading Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA)?
At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 80% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in KNSA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Consonance Capital Management held the most valuable stake in Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), which was worth $72.4 million at the end of the third quarter. On the second spot was Baker Bros. Advisors which amassed $71.3 million worth of shares. Hillhouse Capital Management, Vivo Capital, and Citadel Investment Group 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 Consonance Capital Management allocated the biggest weight to Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA), around 4.34% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, designating 3.06 percent of its 13F equity portfolio to KNSA.
Consequently, some big names were leading the bulls’ herd. Opaleye Management, managed by James A. Silverman, established the largest position in Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA). Opaleye Management had $8.8 million invested in the company at the end of the quarter. Kamran Moghtaderi’s Eversept Partners also initiated a $2.1 million position during the quarter. The other funds with brand new KNSA positions are Anand Parekh’s Alyeska Investment Group, D. E. Shaw’s D E Shaw, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) but similarly valued. These stocks are Urban Outfitters, Inc. (NASDAQ:URBN), Comfort Systems USA, Inc. (NYSE:FIX), Mueller Water Products, Inc. (NYSE:MWA), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), Zuora, Inc. (NYSE:ZUO), LTC Properties Inc (NYSE:LTC), and Turquoise Hill Resources Ltd (NYSE:TRQ). This group of stocks’ market caps are similar to KNSA’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 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $294 million in KNSA’s case. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is the most popular stock in this table. On the other hand Turquoise Hill Resources Ltd (NYSE:TRQ) is the least popular one with only 13 bullish hedge fund positions. Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KNSA is 62.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately KNSA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KNSA investors were disappointed as the stock returned -39.9% in the third 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.