Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was BioMarin Pharmaceutical Inc. (NASDAQ:BMRN).
Hedge fund interest in BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) 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 BMRN to other stocks including Korea Electric Power Corporation (NYSE:KEP), Kansas City Southern (NYSE:KSU), and Old Dominion Freight Line (NASDAQ:ODFL) to get a better sense of its popularity.
Video: Click the image to 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 41 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.
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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a glance at the latest hedge fund action surrounding BioMarin Pharmaceutical Inc. (NASDAQ:BMRN).
How are hedge funds trading BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)?
At Q4’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in BMRN a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Baker Bros. Advisors held the most valuable stake in BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), which was worth $641.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $172.5 million worth of shares. Palo Alto Investors, venBio Select Advisor, and Viking Global were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Copernicus Capital Management allocated the biggest weight to BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), around 13.74% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, dishing out 9.41 percent of its 13F equity portfolio to BMRN.
Seeing as BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) has witnessed bearish sentiment from the smart money, it’s safe to say that there exists a select few money managers that elected to cut their full holdings last quarter. At the top of the heap, James Dinan’s York Capital Management dumped the biggest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $50.4 million in stock, and Brian Ashford-Russell and Tim Woolley’s Polar Capital was right behind this move, as the fund said goodbye to about $14.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). We will take a look at Korea Electric Power Corporation (NYSE:KEP), Kansas City Southern (NYSE:KSU), Old Dominion Freight Line (NASDAQ:ODFL), and Burlington Stores Inc (NYSE:BURL). This group of stocks’ market values are similar to BMRN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $539 million. That figure was $1937 million in BMRN’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on BMRN as the stock returned 0.3% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.