Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
Hedge fund interest in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ARNA to other stocks including Landauer, Inc. (NYSE:LDR), Advaxis, Inc. (NASDAQ:ADXS), and China Yuchai International Limited (NYSE:CYD) to get a better sense of its popularity.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
Now, we’re going to view the key action encompassing Arena Pharmaceuticals, Inc. (NASDAQ:ARNA).
How have hedgies been trading Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards ARNA over the last 5 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Stephen DuBois’s Camber Capital Management has the number one position in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), worth close to $18.4 million, comprising 0.8% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, one of the largest hedge funds in the world, holding a $12.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions comprise Israel Englander’s Millennium Management, and Murray Stahl’s Horizon Asset 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.
Because Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $0.2 million in call options. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $0 million worth.
Let’s also examine hedge fund activity in other stocks similar to Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). We will take a look at Landauer, Inc. (NYSE:LDR), Advaxis, Inc. (NASDAQ:ADXS), China Yuchai International Limited (NYSE:CYD), and Resolute Forest Products Inc (NYSE:RFP). This group of stocks’ market values match ARNA’s market value.
|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 11 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $33 million in ARNA’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand China Yuchai International Limited (NYSE:CYD) is the least popular one with only 6 bullish hedge fund positions. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) 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 RFP might be a better candidate to consider taking a long position in.