Innoviva, Inc. (INVA): Hedge Funds Are Cautiously Waiting On The Sidelines

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 Innoviva, Inc. (NASDAQ:INVA) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in Innoviva, Inc. (NASDAQ:INVA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that INVA 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). 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 Portola Pharmaceuticals Inc (NASDAQ:PTLA), Sally Beauty Holdings, Inc. (NYSE:SBH), and Glu Mobile Inc. (NASDAQ:GLUU) to gather more data points. Our calculations also showed that INVA 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.

Alex Denner Sarissa Capital

Alex Denner of Sarissa Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 go over the fresh hedge fund action surrounding Innoviva, Inc. (NASDAQ:INVA).

How are hedge funds trading Innoviva, Inc. (NASDAQ:INVA)?

Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards INVA over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Innoviva, Inc. (NASDAQ:INVA) was held by Renaissance Technologies, which reported holding $119.3 million worth of stock at the end of September. It was followed by Sarissa Capital Management with a $89.7 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and GLG Partners. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Innoviva, Inc. (NASDAQ:INVA), around 9.97% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, earmarking 2.06 percent of its 13F equity portfolio to INVA.

Judging by the fact that Innoviva, Inc. (NASDAQ:INVA) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that slashed their full holdings last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest investment of all the hedgies followed by Insider Monkey, worth close to $0.8 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $0.6 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Innoviva, Inc. (NASDAQ:INVA). We will take a look at Portola Pharmaceuticals Inc (NASDAQ:PTLA), Sally Beauty Holdings, Inc. (NYSE:SBH), Glu Mobile Inc. (NASDAQ:GLUU), O-I Glass, Inc. (NYSE:OI), Sapiens International Corporation N.V. (NASDAQ:SPNS), Cytokinetics, Inc. (NASDAQ:CYTK), and Avanos Medical, Inc. (NYSE:AVNS). This group of stocks’ market valuations resemble INVA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTLA 26 419311 9
SBH 26 166191 7
GLUU 35 236410 17
OI 25 242769 -4
SPNS 6 43003 -4
CYTK 26 391206 4
AVNS 15 168412 -1
Average 22.7 238186 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $293 million in INVA’s case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 6 bullish hedge fund positions. Innoviva, Inc. (NASDAQ:INVA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INVA is 50.2. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately INVA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); INVA investors were disappointed as the stock returned -25.3% in the third quarter 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.