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Incyte Corporation (INCY) Fell Out Of Favor With Hedge Funds

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Incyte Corporation (NASDAQ:INCY) based on that data and determine whether they were really smart about the stock.

Is Incyte Corporation (NASDAQ:INCY) a splendid investment today? Prominent investors were reducing their bets on the stock. The number of long hedge fund bets fell by 11 in recent months. Incyte Corporation (NASDAQ:INCY) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 53. Our calculations also showed that INCY 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). There were 40 hedge funds in our database with INCY holdings at the end of March.

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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s view the new hedge fund action regarding Incyte Corporation (NASDAQ:INCY).

How are hedge funds trading Incyte Corporation (NASDAQ:INCY)?

At second quarter’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. On the other hand, there were a total of 36 hedge funds with a bullish position in INCY a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Baker Bros. Advisors was the largest shareholder of Incyte Corporation (NASDAQ:INCY), with a stake worth $3326.9 million reported as of the end of September. Trailing Baker Bros. Advisors was Renaissance Technologies, which amassed a stake valued at $652 million. Two Sigma Advisors, Polar Capital, and Armistice Capital 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 Baker Bros. Advisors allocated the biggest weight to Incyte Corporation (NASDAQ:INCY), around 14.67% of its 13F portfolio. Bridger Management is also relatively very bullish on the stock, setting aside 3.3 percent of its 13F equity portfolio to INCY.

Because Incyte Corporation (NASDAQ:INCY) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds that slashed their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $34.1 million in stock. Stephen DuBois’s fund, Camber Capital Management, also cut its stock, about $26.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 11 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Incyte Corporation (NASDAQ:INCY). We will take a look at Tencent Music Entertainment Group (NYSE:TME), Liberty Broadband Corp (NASDAQ:LBRDA), Liberty Broadband Corp (NASDAQ:LBRDK), Best Buy Co., Inc. (NYSE:BBY), State Street Corporation (NYSE:STT), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), and Fortinet Inc (NASDAQ:FTNT). This group of stocks’ market valuations match INCY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TME 30 538341 5
LBRDA 22 718343 -4
LBRDK 58 3372154 13
BBY 33 1062886 -4
STT 36 668259 2
BMRN 45 2005739 -9
FTNT 44 1815016 15
Average 38.3 1454391 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $1454 million. That figure was $4432 million in INCY’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Liberty Broadband Corp (NASDAQ:LBRDA) is the least popular one with only 22 bullish hedge fund positions. Incyte Corporation (NASDAQ:INCY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INCY is 20.1. 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 negative signal and 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately INCY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INCY investors were disappointed as the stock returned -10.4% since Q2 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 most of these stocks already outperformed the market in 2020.

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