Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR) has seen an increase in hedge fund sentiment of late. There were 5 hedge funds in our database with ARWR holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Zumiez Inc. (NASDAQ:ZUMZ), Peoples Bancorp Inc. (NASDAQ:PEBO), and Sorrentto Therapeutics Inc (NASDAQ:SRNE) to gather more data points.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
With all of this in mind, let’s view the latest action regarding Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR).
What have hedge funds been doing with Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a boost of 100% from the second quarter of 2016. By comparison, 0 hedge funds held shares or bullish call options in ARWR heading into this year. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Daniel Gold’s QVT Financial has the largest position in Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR), worth close to $18.8 million, comprising 0.7% of its total 13F portfolio. The second largest stake is held by OrbiMed Advisors, led by Samuel Isaly, which oversees a $15.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Julian Baker and Felix Baker’s Baker Bros. Advisors, Peter Kolchinsky’s RA Capital Management and Joseph Edelman’s Perceptive Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.