Here is What Hedge Funds Think About Heron Therapeutics Inc (HRTX)

In this article you are going to find out whether hedge funds think Heron Therapeutics Inc (NASDAQ:HRTX) 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.

Heron Therapeutics Inc (NASDAQ:HRTX) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. 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 Marcus & Millichap Inc (NYSE:MMI), Viper Energy Partners LP (NASDAQ:VNOM), and Pretium Resources Inc (NYSE:PVG) to gather more data points. Our calculations also showed that HRTX 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.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

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 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. Now let’s check out the latest hedge fund action surrounding Heron Therapeutics Inc (NASDAQ:HRTX).

Hedge fund activity in Heron Therapeutics Inc (NASDAQ:HRTX)

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in HRTX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Baker Bros. Advisors held the most valuable stake in Heron Therapeutics Inc (NASDAQ:HRTX), which was worth $70.7 million at the end of the third quarter. On the second spot was Tang Capital Management which amassed $34 million worth of shares. Partner Fund Management, D E Shaw, and Citadel Investment Group 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 Tang Capital Management allocated the biggest weight to Heron Therapeutics Inc (NASDAQ:HRTX), around 4.78% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, earmarking 2.39 percent of its 13F equity portfolio to HRTX.

Since Heron Therapeutics Inc (NASDAQ:HRTX) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedgies who were dropping their full holdings last quarter. It’s worth mentioning that Roberto Mignone’s Bridger Management said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling close to $40.5 million in stock, and Farallon Capital was right behind this move, as the fund sold off about $20.6 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Heron Therapeutics Inc (NASDAQ:HRTX). These stocks are Marcus & Millichap Inc (NYSE:MMI), Viper Energy Partners LP (NASDAQ:VNOM), Pretium Resources Inc (NYSE:PVG), and Addus Homecare Corporation (NASDAQ:ADUS). This group of stocks’ market values match HRTX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MMI 9 83327 -4
VNOM 11 29548 -5
PVG 25 66926 1
ADUS 15 65282 -2
Average 15 61271 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $223 million in HRTX’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand Marcus & Millichap Inc (NYSE:MMI) is the least popular one with only 9 bullish hedge fund positions. Heron Therapeutics Inc (NASDAQ:HRTX) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on HRTX as the stock returned 82.9% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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