In this article we will check out the progression of hedge fund sentiment towards Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) a healthy stock for your portfolio? The smart money is becoming more confident. The number of bullish hedge fund bets improved by 3 lately. Our calculations also showed that ARNA 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). ARNA was in 36 hedge funds’ portfolios at the end of the first quarter of 2020. There were 33 hedge funds in our database with ARNA holdings at the end of the previous quarter.
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 51 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.
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 trades like this one. 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. With all of this in mind let’s check out the fresh hedge fund action regarding Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
How are hedge funds trading Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in ARNA a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) was held by Citadel Investment Group, which reported holding $52.2 million worth of stock at the end of September. It was followed by Alyeska Investment Group with a $34.2 million position. Other investors bullish on the company included Alkeon Capital Management, Partner Fund Management, and Holocene Advisors. In terms of the portfolio weights assigned to each position Prosight Capital allocated the biggest weight to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), around 8.24% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, dishing out 3.15 percent of its 13F equity portfolio to ARNA.
As industrywide interest jumped, key money managers have been driving this bullishness. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, created the most valuable position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). Alkeon Capital Management had $31.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $30.5 million investment in the stock during the quarter. The other funds with brand new ARNA positions are Arthur B Cohen and Joseph Healey’s Healthcor Management LP, Jeffrey Jay and David Kroin’s Great Point Partners, and Henrik Rhenman’s Rhenman & Partners Asset Management.
Let’s now review hedge fund activity in other stocks similar to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). These stocks are Uniqure NV (NASDAQ:QURE), BEST Inc. (NYSE:BEST), New Residential Investment Corp (NYSE:NRZ), and Vishay Intertechnology, Inc. (NYSE:VSH). This group of stocks’ market valuations resemble ARNA’s market valuation.
|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 24 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $363 million in ARNA’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 6 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ARNA as the stock returned 42.3% in Q2 (through the end of May) 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.