Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Is Intercept Pharmaceuticals Inc (NASDAQ:ICPT) a superb investment today? Hedge funds are becoming less confident. The number of long hedge fund bets experienced a decline of 2 lately. ICPT was in 15 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with ICPT positions at the end of the previous quarter. At the end of this article we will also compare ICPT to other stocks including Morningstar, Inc. (NASDAQ:MORN), Oshkosh Corporation (NYSE:OSK), and Lancaster Colony Corp. (NASDAQ:LANC) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Hedge fund activity in Intercept Pharmaceuticals Inc (NASDAQ:ICPT)
Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a 12% fall from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ICPT over the last 5 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, OrbiMed Advisors, led by Samuel Isaly, holds the largest position in Intercept Pharmaceuticals Inc (NASDAQ:ICPT). OrbiMed Advisors has a $184.3 million position in the stock, comprising 2.1% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, which holds a $70.2 million position. Some other peers that hold long positions comprise Jonathon Jacobson’s Highfields Capital Management, Daniel Gold’s QVT Financial and Principal Global Investors’ Columbus Circle Investors. 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 cut their entire stakes in the stock during the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group cut the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $8.6 million in call options. Ken Greenberg and David Kim’s fund, Ghost Tree Capital, also dropped its call options, about $5 million worth.
Let’s now take a look at hedge fund activity in other stocks similar to Intercept Pharmaceuticals Inc (NASDAQ:ICPT). We will take a look at Morningstar, Inc. (NASDAQ:MORN), Oshkosh Corporation (NYSE:OSK), Lancaster Colony Corp. (NASDAQ:LANC), and National Instruments Corp (NASDAQ:NATI). This group of stocks’ market caps are similar to ICPT’s market cap.
|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 20 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $392 million in ICPT’s case. Oshkosh Corporation (NYSE:OSK) is the most popular stock in this table. On the other hand Lancaster Colony Corp. (NASDAQ:LANC) is the least popular one with only 14 bullish hedge fund positions. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OSK might be a better candidate to consider taking a long position in.