Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Scholar Rock Holding Corporation (NASDAQ:SRRK) from the perspective of those elite funds.
Is Scholar Rock Holding Corporation (NASDAQ:SRRK) the right investment to pursue these days? Investors who are in the know are getting more optimistic. The number of long hedge fund positions increased by 3 recently. Our calculations also showed that SRRK isn’t among the 30 most popular stocks among hedge funds (see the video below). SRRK was in 8 hedge funds’ portfolios at the end of June. There were 5 hedge funds in our database with SRRK holdings at the end of the previous quarter.
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding Scholar Rock Holding Corporation (NASDAQ:SRRK).
How have hedgies been trading Scholar Rock Holding Corporation (NASDAQ:SRRK)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SRRK over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Redmile Group was the largest shareholder of Scholar Rock Holding Corporation (NASDAQ:SRRK), with a stake worth $46.3 million reported as of the end of March. Trailing Redmile Group was Cormorant Asset Management, which amassed a stake valued at $2.4 million. Alyeska Investment Group, Marshall Wace LLP, and Magnetar Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, assembled the most outsized position in Scholar Rock Holding Corporation (NASDAQ:SRRK). Alyeska Investment Group had $1.9 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new SRRK investors: Ken Griffin’s Citadel Investment Group, Paul Tudor Jones’s Tudor Investment Corp, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Scholar Rock Holding Corporation (NASDAQ:SRRK) but similarly valued. We will take a look at Oxford Lane Capital Corp. (NASDAQ:OXLC), Clarus Corporation (NASDAQ:CLAR), Penn Virginia Corporation (NASDAQ:PVAC), and Equity Bancshares, Inc. (NASDAQ:EQBK). This group of stocks’ market caps match SRRK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OXLC | 3 | 1694 | 2 |
| CLAR | 14 | 59330 | 1 |
| PVAC | 17 | 191377 | 0 |
| EQBK | 5 | 41098 | -2 |
| Average | 9.75 | 73375 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $53 million in SRRK’s case. Penn Virginia Corporation (NASDAQ:PVAC) is the most popular stock in this table. On the other hand Oxford Lane Capital Corp. (NASDAQ:OXLC) is the least popular one with only 3 bullish hedge fund positions. Scholar Rock Holding Corporation (NASDAQ:SRRK) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SRRK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SRRK investors were disappointed as the stock returned -43.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
