Hedge Funds Have Never Been This Bullish On ESSA Pharma Inc. (EPIX)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like ESSA Pharma Inc. (NASDAQ:EPIX).

ESSA Pharma Inc. (NASDAQ:EPIX) was in 3 hedge funds’ portfolios at the end of the third quarter of 2019. EPIX investors should pay attention to an increase in hedge fund interest in recent months. There were 1 hedge funds in our database with EPIX positions at the end of the previous quarter. Our calculations also showed that EPIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Kolchinsky of RA Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a look at the new hedge fund action regarding ESSA Pharma Inc. (NASDAQ:EPIX).

What does smart money think about ESSA Pharma Inc. (NASDAQ:EPIX)?

At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 200% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EPIX over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in ESSA Pharma Inc. (NASDAQ:EPIX) was held by Biotechnology Value Fund, which reported holding $8.9 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $5 million position. The only other hedge fund that is bullish on the company was RA Capital Management.

As one would reasonably expect, specific money managers have jumped into ESSA Pharma Inc. (NASDAQ:EPIX) headfirst. OrbiMed Advisors, managed by Samuel Isaly, established the largest position in ESSA Pharma Inc. (NASDAQ:EPIX). OrbiMed Advisors had $5 million invested in the company at the end of the quarter. Peter Kolchinsky’s RA Capital Management also made a $3.4 million investment in the stock during the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ESSA Pharma Inc. (NASDAQ:EPIX) but similarly valued. These stocks are Endologix, Inc. (NASDAQ:ELGX), Agile Therapeutics Inc (NASDAQ:AGRX), Navios Maritime Containers L.P. (NASDAQ:NMCI), and Western Copper and Gold Corporation (NYSE:WRN). This group of stocks’ market caps resemble EPIX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELGX 5 4860 -3
AGRX 10 21190 5
NMCI 3 11248 0
WRN 4 330 2
Average 5.5 9407 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $17 million in EPIX’s case. Agile Therapeutics Inc (NASDAQ:AGRX) is the most popular stock in this table. On the other hand Navios Maritime Containers L.P. (NASDAQ:NMCI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks ESSA Pharma Inc. (NASDAQ:EPIX) is even less popular than NMCI. Hedge funds clearly dropped the ball on EPIX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EPIX as the stock returned 47% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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