In this article you are going to find out whether hedge funds think Arvinas, Inc. (NASDAQ:ARVN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Arvinas, Inc. (NASDAQ:ARVN) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. ARVN was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 26 hedge funds in our database with ARVN positions at the end of the previous quarter. Our calculations also showed that ARVN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the fresh hedge fund action surrounding Arvinas, Inc. (NASDAQ:ARVN).
How are hedge funds trading Arvinas, Inc. (NASDAQ:ARVN)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in ARVN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Peter Kolchinsky’s RA Capital Management has the biggest position in Arvinas, Inc. (NASDAQ:ARVN), worth close to $148 million, corresponding to 4.7% of its total 13F portfolio. The second largest stake is held by EcoR1 Capital, managed by Oleg Nodelman, which holds a $61.6 million position; the fund has 6.4% of its 13F portfolio invested in the stock. Some other peers that are bullish contain James E. Flynn’s Deerfield Management, Samuel Isaly’s OrbiMed Advisors and Lei Zhang’s Hillhouse Capital Management. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Arvinas, Inc. (NASDAQ:ARVN), around 6.43% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, earmarking 5.47 percent of its 13F equity portfolio to ARVN.
Due to the fact that Arvinas, Inc. (NASDAQ:ARVN) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few funds that elected to cut their positions entirely heading into Q4. At the top of the heap, Joseph Edelman’s Perceptive Advisors cut the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $16.4 million in stock, and Michael Castor’s Sio Capital was right behind this move, as the fund said goodbye to about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Arvinas, Inc. (NASDAQ:ARVN). We will take a look at NIC Inc. (NASDAQ:EGOV), 21Vianet Group Inc (NASDAQ:VNET), KAR Auction Services Inc (NYSE:KAR), and ForeScout Technologies, Inc. (NASDAQ:FSCT). This group of stocks’ market valuations are closest to ARVN’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $431 million in ARVN’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand 21Vianet Group Inc (NASDAQ:VNET) is the least popular one with only 15 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. 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 13.9% in 2020 through June 10th but beat the market by 14.2 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 -17% 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.
Disclosure: None. This article was originally published at Insider Monkey.