Hedge Funds Avoided Losses in RedHill Biopharma Ltd (RDHL)

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of RedHill Biopharma Ltd – ADR (NASDAQ:RDHL) based on that data.

RedHill Biopharma Ltd – ADR (NASDAQ:RDHL) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was only in 2 hedge funds’ portfolios at the end of September. At the end of this article we will also compare RDHL to other stocks including Gold Resource Corporation (NYSE:GORO), Northeast Bank (NASDAQ:NBN), and Norwood Financial Corp. (NASDAQ:NWFL) to get a better sense of its popularity.
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.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

Let’s take a gander at the recent hedge fund action surrounding RedHill Biopharma Ltd – ADR (NASDAQ:RDHL).

How are hedge funds trading RedHill Biopharma Ltd – ADR (NASDAQ:RDHL)?

At the end of the third quarter, a total of 2 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RDHL over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).


The largest stake in RedHill Biopharma Ltd – ADR (NASDAQ:RDHL) was held by 683 Capital Partners, which reported holding $24.5 million worth of stock at the end of September. It was followed by Millennium Management with a $0.1 million position.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: 999. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s go over hedge fund activity in other stocks similar to RedHill Biopharma Ltd – ADR (NASDAQ:RDHL). These stocks are Gold Resource Corporation (NYSE:GORO), Northeast Bank (NASDAQ:NBN), Norwood Financial Corp. (NASDAQ:NWFL), and GlobalSCAPE, Inc. (NYSE:GSB). This group of stocks’ market caps are similar to RDHL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GORO 6 5835 -2
NBN 6 38130 0
NWFL 2 2150 0
GSB 5 21166 0
Average 4.75 16820 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $25 million in RDHL’s case. Gold Resource Corporation (NYSE:GORO) is the most popular stock in this table. On the other hand Norwood Financial Corp. (NASDAQ:NWFL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks RedHill Biopharma Ltd – ADR (NASDAQ:RDHL) is even less popular than NWFL. Hedge funds dodged a bullet by taking a bearish stance towards RDHL. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately RDHL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RDHL investors were disappointed as the stock returned -16.1% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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