How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) and determine whether hedge funds had an edge regarding this stock.
Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) was in 24 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. Our calculations also showed that RARE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a look at the new hedge fund action regarding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).
What have hedge funds been doing with Ultragenyx Pharmaceutical Inc (NASDAQ:RARE)?
At second quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RARE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the number one position in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), worth close to $139.2 million, amounting to 0.4% of its total 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $51.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Oleg Nodelman’s EcoR1 Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), around 3% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, dishing out 1.39 percent of its 13F equity portfolio to RARE.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most outsized position in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). Two Sigma Advisors had $3.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.8 million position during the quarter. The following funds were also among the new RARE investors: Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) but similarly valued. These stocks are Cullen/Frost Bankers, Inc. (NYSE:CFR), Leggett & Platt, Inc. (NYSE:LEG), Globus Medical Inc (NYSE:GMED), Eastgroup Properties Inc (NYSE:EGP), Texas Pacific Land Trust (NYSE:TPL), Pure Storage, Inc. (NYSE:PSTG), and The AZEK Company Inc. (NYSE:AZEK). This group of stocks’ market values are closest to RARE’s market value.
|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 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $353 million in RARE’s case. Globus Medical Inc (NYSE:GMED) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 13 bullish hedge fund positions. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RARE is 67.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately RARE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RARE were disappointed as the stock returned 4.9% 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.
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Disclosure: None. This article was originally published at Insider Monkey.