Is Intercept Pharmaceuticals Inc (ICPT) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Intercept Pharmaceuticals Inc (NASDAQ:ICPT).

Intercept Pharmaceuticals Inc (NASDAQ:ICPT) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. ICPT investors should be aware of a decrease in hedge fund interest of late. There were 27 hedge funds in our database with ICPT holdings at the end of the previous quarter. Our calculations also showed that ICPT 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.

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 58 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.

Alex Denner Sarissa Capital

Alex Denner of Sarissa 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 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. Now let’s analyze the fresh hedge fund action regarding Intercept Pharmaceuticals Inc (NASDAQ:ICPT).

What have hedge funds been doing with Intercept Pharmaceuticals Inc (NASDAQ:ICPT)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ICPT over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Sarissa Capital Management was the largest shareholder of Intercept Pharmaceuticals Inc (NASDAQ:ICPT), with a stake worth $72.7 million reported as of the end of September. Trailing Sarissa Capital Management was Rima Senvest Management, which amassed a stake valued at $67.9 million. Two Sigma Advisors, Samsara BioCapital, and Renaissance Technologies 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 Samsara BioCapital allocated the biggest weight to Intercept Pharmaceuticals Inc (NASDAQ:ICPT), around 14.63% of its 13F portfolio. Sarissa Capital Management is also relatively very bullish on the stock, earmarking 9.28 percent of its 13F equity portfolio to ICPT.

Because Intercept Pharmaceuticals Inc (NASDAQ:ICPT) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies who sold off their entire stakes in the first quarter. It’s worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners cut the largest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $18.6 million in stock. Joseph Edelman’s fund, Perceptive Advisors, also dropped its stock, about $12.1 million worth. These moves are interesting, as total hedge fund interest was cut by 8 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Intercept Pharmaceuticals Inc (NASDAQ:ICPT). These stocks are Brookfield Business Partners L.P. (NYSE:BBU), Integer Holdings Corporation (NYSE:ITGR), Apple Hospitality REIT Inc (NYSE:APLE), and Proto Labs Inc (NYSE:PRLB). This group of stocks’ market values match ICPT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBU 2 1459 -2
ITGR 20 88925 0
APLE 11 74704 -4
PRLB 13 21459 3
Average 11.5 46637 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $259 million in ICPT’s case. Integer Holdings Corporation (NYSE:ITGR) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 2 bullish hedge fund positions. Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on ICPT as the stock returned 28.3% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.