You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. There were 20 hedge funds in our database with ARLZ positions 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 City Office REIT Inc (NYSE:CIO), Lionbridge Technologies, Inc. (NASDAQ:LIOX), and Novan Inc (NASDAQ:NOVN) to gather more data points.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
Keeping this in mind, let’s take a look at the fresh action regarding Aralez Pharmaceuticals Inc (NASDAQ:ARLZ).
How have hedgies been trading Aralez Pharmaceuticals Inc (NASDAQ:ARLZ)?
Heading into the fourth quarter of 2016, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARLZ over the last 5 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, PAR Capital Management, led by Paul Reeder and Edward Shapiro, holds the most valuable position in Aralez Pharmaceuticals Inc (NASDAQ:ARLZ). PAR Capital Management has a $31 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Kevin Kotler of Broadfin Capital, with a $21.4 million position; 1.9% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions comprise Steven Boyd’s Armistice Capital, Jesse Ro’s Tiger Legatus Capital and James E. Flynn’s Deerfield Management. 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.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that said goodbye to their entire stakes in the stock during the third quarter. Intriguingly, Renaissance Technologies, one of the largest hedge funds in the world said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, totaling an estimated $1.8 million in stock. Michael Blitzer’s fund, Kingstown Capital Management, also sold off its stock, about $1.3 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) but similarly valued. These stocks are City Office REIT Inc (NYSE:CIO), Lionbridge Technologies, Inc. (NASDAQ:LIOX), Novan Inc (NASDAQ:NOVN), and Aerohive Networks Inc (NYSE:HIVE). This group of stocks’ market values resemble ARLZ’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $93 million in ARLZ’s case. Lionbridge Technologies, Inc. (NASDAQ:LIOX) is the most popular stock in this table. On the other hand Novan Inc (NASDAQ:NOVN) is the least popular one with only 5 bullish hedge fund positions. Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) 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. In this regard LIOX might be a better candidate to consider taking a long position in.