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Is Arcutis Biotherapeutics, Inc. (ARQT) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) shareholders have witnessed an increase in enthusiasm from smart money lately. ARQT was in 8 hedge funds’ portfolios at the end of the first quarter of 2020. There were 0 hedge funds in our database with ARQT positions at the end of the previous quarter. Our calculations also showed that ARQT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

According to most investors, hedge funds are viewed as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open today, Our researchers hone in on the moguls of this group, around 850 funds. Most estimates calculate that this group of people handle most of the hedge fund industry’s total capital, and by tracking their finest equity investments, Insider Monkey has identified numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Kolchinsky of RA Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the fresh hedge fund action encompassing Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT).

What does smart money think about Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8 from the fourth quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in ARQT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Alan Frazier’s Frazier Healthcare Partners has the biggest position in Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), worth close to $314.2 million, comprising 35.6% of its total 13F portfolio. Coming in second is OrbiMed Advisors, led by Samuel Isaly, holding a $139.3 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Albert Cha and Frank Kung’s Vivo Capital, Peter Kolchinsky’s RA Capital Management and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), around 35.62% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, setting aside 4.55 percent of its 13F equity portfolio to ARQT.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Frazier Healthcare Partners, managed by Alan Frazier, assembled the most valuable position in Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT). Frazier Healthcare Partners had $314.2 million invested in the company at the end of the quarter. Samuel Isaly’s OrbiMed Advisors also made a $139.3 million investment in the stock during the quarter. The other funds with brand new ARQT positions are Albert Cha and Frank Kung’s Vivo Capital, Peter Kolchinsky’s RA Capital Management, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) but similarly valued. These stocks are Eldorado Resorts Inc (NASDAQ:ERI), Enable Midstream Partners LP (NYSE:ENBL), Texas Capital Bancshares Inc (NASDAQ:TCBI), and Scorpio Tankers Inc. (NYSE:STNG). All of these stocks’ market caps resemble ARQT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERI 39 278872 -10
ENBL 6 6540 2
TCBI 19 52354 -7
STNG 25 87700 -8
Average 22.25 106367 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $553 million in ARQT’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) 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. 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 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately ARQT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ARQT investors were disappointed as the stock returned -2.7% during the second 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.