The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Reata Pharmaceuticals, Inc. (NASDAQ:RETA) based on those filings.
Reata Pharmaceuticals, Inc. (NASDAQ:RETA) has seen an increase in support from the world’s most elite money managers of late. RETA was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with RETA positions at the end of the previous quarter. Our calculations also showed that RETA 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.
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 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 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 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 we’re going to review the recent hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
What have hedge funds been doing with Reata Pharmaceuticals, Inc. (NASDAQ:RETA)?
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in RETA a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Stanley Druckenmiller’s Duquesne Capital has the biggest position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA), worth close to $76.8 million, comprising 3.1% of its total 13F portfolio. The second most bullish fund manager is Cormorant Asset Management, managed by Bihua Chen, which holds a $70.3 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Bihua Chen’s Cormorant Asset Management, Israel Englander’s Millennium Management and Mark Hart III’s Corriente Advisors. In terms of the portfolio weights assigned to each position Corriente Advisors allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 29.6% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, dishing out 5.06 percent of its 13F equity portfolio to RETA.
As one would reasonably expect, some big names have jumped into Reata Pharmaceuticals, Inc. (NASDAQ:RETA) headfirst. Partner Fund Management, managed by Christopher James, assembled the largest position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA). Partner Fund Management had $14.1 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also made a $3.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Jody LaNasa’s Serengeti Asset Management, Greg Eisner’s Engineers Gate Manager, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) but similarly valued. We will take a look at People’s United Financial, Inc. (NASDAQ:PBCT), Steel Dynamics, Inc. (NASDAQ:STLD), First American Financial Corp (NYSE:FAF), and PG&E Corporation (NYSE:PCG). This group of stocks’ market values match RETA’s market value.
|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 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $721 million. That figure was $398 million in RETA’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand People’s United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 22 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately RETA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RETA investors were disappointed as the stock returned 0.7% 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.
Disclosure: None. This article was originally published at Insider Monkey.