Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Keeping this in mind, let’s take a look at whether Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) investors should be aware of an increase in hedge fund sentiment lately. Our calculations also showed that VRTX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s check out the key hedge fund action regarding Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).
How have hedgies been trading Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)?
At the end of the fourth quarter, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in VRTX over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), with a stake worth $1549.4 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $263.8 million. Citadel Investment Group, Adage Capital Management, and OrbiMed Advisors 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 Copernicus Capital Management allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 16.6% of its 13F portfolio. Melqart Asset Management is also relatively very bullish on the stock, setting aside 5.28 percent of its 13F equity portfolio to VRTX.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Balyasny Asset Management had $34.9 million invested in the company at the end of the quarter. Christopher James’s Partner Fund Management also made a $12.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Martinez’s Parkman Healthcare Partners, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks similar to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). We will take a look at CSX Corporation (NYSE:CSX), Eni SpA (NYSE:E), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Applied Materials, Inc. (NASDAQ:AMAT). This group of stocks’ market valuations are similar to VRTX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CSX | 46 | 2345719 | 5 |
| E | 6 | 45145 | 0 |
| MMC | 31 | 649419 | 3 |
| AMAT | 72 | 3452552 | 17 |
| Average | 38.75 | 1623209 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1623 million. That figure was $3272 million in VRTX’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 6 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on VRTX as the stock returned 0.3% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
