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 Reata Pharmaceuticals, Inc. (NASDAQ:RETA) and determine whether hedge funds skillfully traded this stock.
Reata Pharmaceuticals, Inc. (NASDAQ:RETA) shareholders have witnessed an increase in hedge fund sentiment lately. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RETA 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.
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 58 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, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing Reata Pharmaceuticals, Inc. (NASDAQ:RETA).
What does smart money think about Reata Pharmaceuticals, Inc. (NASDAQ:RETA)?
At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RETA over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Duquesne Capital was the largest shareholder of Reata Pharmaceuticals, Inc. (NASDAQ:RETA), with a stake worth $83.1 million reported as of the end of September. Trailing Duquesne Capital was Cormorant Asset Management, which amassed a stake valued at $62.4 million. Millennium Management, Deerfield Management, and Logos Capital 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 Corriente Advisors allocated the biggest weight to Reata Pharmaceuticals, Inc. (NASDAQ:RETA), around 14.91% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, dishing out 6.24 percent of its 13F equity portfolio to RETA.
As aggregate interest increased, some big names have jumped into Reata Pharmaceuticals, Inc. (NASDAQ:RETA) headfirst. Sphera Global Healthcare Fund, managed by Doron Breen and Mori Arkin, initiated the biggest position in Reata Pharmaceuticals, Inc. (NASDAQ:RETA). Sphera Global Healthcare Fund had $12.8 million invested in the company at the end of the quarter. Blair Baker’s Precept Capital Management also initiated a $4.8 million position during the quarter. The other funds with brand new RETA positions are Donald Sussman’s Paloma Partners, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Benjamin A. Smith’s Laurion Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Reata Pharmaceuticals, Inc. (NASDAQ:RETA) but similarly valued. These stocks are Planet Fitness Inc (NYSE:PLNT), CubeSmart (NYSE:CUBE), Enel Chile S.A. (NYSE:ENIC), Yamana Gold Inc. (NYSE:AUY), Vedanta Ltd (NYSE:VEDL), Hess Midstream LP (NYSE:HESM), and Tech Data Corp (NASDAQ:TECD). This group of stocks’ market caps are similar to RETA’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 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $440 million in RETA’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RETA is 73.2. 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 positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately RETA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RETA were disappointed as the stock returned -32.7% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.