It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Aralez Pharmaceuticals Inc (NASDAQ:ARLZ).
Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) has experienced a decrease in support from the world’s most successful money managers of late. ARLZ was in 17 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with ARLZ holdings at the end of the previous quarter. At the end of this article we will also compare ARLZ to other stocks including City Office REIT Inc (NYSE:CIO), Lionbridge Technologies, Inc. (NASDAQ:LIOX), and Novan Inc (NASDAQ:NOVN) 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.
Keeping this in mind, we’re going to view the new action regarding Aralez Pharmaceuticals Inc (NASDAQ:ARLZ).
What have hedge funds been doing with Aralez Pharmaceuticals Inc (NASDAQ:ARLZ)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 15% from the second quarter of 2016. On the other hand, there were a total of 0 hedge funds with a bullish position in ARLZ at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Reeder and Edward Shapiro’s PAR Capital Management has the number one position in Aralez Pharmaceuticals Inc (NASDAQ:ARLZ), worth close to $31 million, corresponding to 0.4% of its total 13F portfolio. On PAR Capital Management’s heels is Kevin Kotler of Broadfin Capital, with a $21.4 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish include 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 dropped their entire stakes in the stock during the third quarter. It’s worth mentioning that Renaissance Technologies, one of the largest hedge funds in the world, dropped the largest investment of the 700 funds monitored by Insider Monkey, valued at close to $1.8 million in Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) stock, and Michael Blitzer’s Kingstown Capital Management was right behind this move, as the fund said goodbye to about $1.3 million worth of shares.
Let’s now take a look at 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 caps are similar to ARLZ’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 10 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.