Hedge Funds Have Never Been This Bullish On Arvinas, Inc. (ARVN)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Arvinas, Inc. (NASDAQ:ARVN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Arvinas, Inc. (NASDAQ:ARVN) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ARVN has seen an increase in activity from the world’s largest hedge funds in recent months. There were 25 hedge funds in our database with ARVN positions at the end of the first quarter. Our calculations also showed that ARVN 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

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. 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 glance at the new hedge fund action encompassing Arvinas, Inc. (NASDAQ:ARVN).

How have hedgies been trading Arvinas, Inc. (NASDAQ:ARVN)?

At the end of June, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in ARVN a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Peter Kolchinsky’s RA Capital Management has the number one position in Arvinas, Inc. (NASDAQ:ARVN), worth close to $123.2 million, accounting for 2.4% of its total 13F portfolio. The second most bullish fund manager is Deerfield Management, managed by James E. Flynn, which holds a $33.8 million position; 1% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Ken Griffin’s Citadel Investment Group, Lei Zhang’s Hillhouse Capital Management and Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management. In terms of the portfolio weights assigned to each position RA Capital Management allocated the biggest weight to Arvinas, Inc. (NASDAQ:ARVN), around 2.4% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, earmarking 1.77 percent of its 13F equity portfolio to ARVN.

As industrywide interest jumped, key money managers were breaking ground themselves. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, assembled the most outsized position in Arvinas, Inc. (NASDAQ:ARVN). Sectoral Asset Management had $15.7 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $5.4 million position during the quarter. The following funds were also among the new ARVN investors: Anand Parekh’s Alyeska Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and James Thomas Berylson’s Berylson Capital Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Arvinas, Inc. (NASDAQ:ARVN) but similarly valued. We will take a look at Mobile Mini Inc (NASDAQ:MINI), CBIZ, Inc. (NYSE:CBZ), SunPower Corporation (NASDAQ:SPWR), Terex Corporation (NYSE:TEX), Kulicke and Soffa Industries Inc. (NASDAQ:KLIC), McGrath RentCorp (NASDAQ:MGRC), and Northwest Bancshares, Inc. (NASDAQ:NWBI). This group of stocks’ market values resemble ARVN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MINI 20 165538 2
CBZ 14 176335 4
SPWR 16 32788 2
TEX 19 206903 -2
KLIC 32 197198 13
MGRC 22 77889 2
NWBI 8 28046 -6
Average 18.7 126385 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $311 million in ARVN’s case. Kulicke and Soffa Industries Inc. (NASDAQ:KLIC) is the most popular stock in this table. On the other hand Northwest Bancshares, Inc. (NASDAQ:NWBI) is the least popular one with only 8 bullish hedge fund positions. Arvinas, Inc. (NASDAQ:ARVN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARVN is 87.9. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately ARVN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ARVN were disappointed as the stock returned -19.8% 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.