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Here is What Hedge Funds Think About OptiNose, Inc. (OPTN)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards OptiNose, Inc. (NASDAQ:OPTN) and determine whether hedge funds skillfully traded this stock.

Is OptiNose, Inc. (NASDAQ:OPTN) a buy right now? Money managers were getting less optimistic. The number of long hedge fund bets went down by 5 in recent months. Our calculations also showed that OPTN 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Justin John Ferayorni - Tamarack Capital Management

Justin John Ferayorni of Tamarack Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the recent hedge fund action encompassing OptiNose, Inc. (NASDAQ:OPTN).

What have hedge funds been doing with OptiNose, Inc. (NASDAQ:OPTN)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in OPTN a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Tamarack Capital Management was the largest shareholder of OptiNose, Inc. (NASDAQ:OPTN), with a stake worth $7 million reported as of the end of September. Trailing Tamarack Capital Management was Farallon Capital, which amassed a stake valued at $3.5 million. GMT Capital, Hudson Bay Capital Management, and Renaissance Technologies 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 Tamarack Capital Management allocated the biggest weight to OptiNose, Inc. (NASDAQ:OPTN), around 2.64% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to OPTN.

Seeing as OptiNose, Inc. (NASDAQ:OPTN) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds who sold off their positions entirely by the end of the first quarter. Interestingly, Jeffrey Jay and David Kroin’s Great Point Partners said goodbye to the largest position of all the hedgies monitored by Insider Monkey, comprising close to $10.9 million in stock, and Leonard A. Potter’s Wildcat Capital Management was right behind this move, as the fund dropped about $3.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as OptiNose, Inc. (NASDAQ:OPTN) but similarly valued. We will take a look at Telenav Inc (NASDAQ:TNAV), Rafael Holdings, Inc. (NYSE:RFL), Spok Holdings Inc (NASDAQ:SPOK), and Beazer Homes USA, Inc. (NYSE:BZH). This group of stocks’ market values are similar to OPTN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNAV 13 46283 0
RFL 5 23762 -2
SPOK 13 22419 1
BZH 12 22450 -2
Average 10.75 28729 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $17 million in OPTN’s case. Telenav Inc (NASDAQ:TNAV) is the most popular stock in this table. On the other hand Rafael Holdings, Inc. (NYSE:RFL) is the least popular one with only 5 bullish hedge fund positions. OptiNose, Inc. (NASDAQ:OPTN) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on OPTN as the stock returned 65.7% in Q2 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.