Is IVERIC bio, Inc. (ISEE) 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. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards IVERIC bio, Inc. (NASDAQ:ISEE).

IVERIC bio, Inc. (NASDAQ:ISEE) has experienced an increase in hedge fund interest lately. ISEE was in 23 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with ISEE holdings at the end of the previous quarter. Our calculations also showed that ISEE 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Tim Lynch of Stonepine Capital

Timothy Lynch of Stonepine Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. Keeping this in mind let’s go over the recent hedge fund action regarding IVERIC bio, Inc. (NASDAQ:ISEE).

How have hedgies been trading IVERIC bio, Inc. (NASDAQ:ISEE)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ISEE over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Mitchell Blutt’s Consonance Capital Management has the number one position in IVERIC bio, Inc. (NASDAQ:ISEE), worth close to $10.8 million, comprising 0.8% of its total 13F portfolio. The second largest stake is held by Stonepine Capital, led by Timothy P. Lynch, holding a $8.9 million position; the fund has 9.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass James E. Flynn’s Deerfield Management, Julian Baker and Felix Baker’s Baker Bros. Advisors and Guy Levy’s Soleus Capital. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to IVERIC bio, Inc. (NASDAQ:ISEE), around 9.4% of its 13F portfolio. Soleus Capital is also relatively very bullish on the stock, designating 6.43 percent of its 13F equity portfolio to ISEE.

As industrywide interest jumped, key money managers were breaking ground themselves. Stonepine Capital, managed by Timothy P. Lynch, established the biggest position in IVERIC bio, Inc. (NASDAQ:ISEE). Stonepine Capital had $8.9 million invested in the company at the end of the quarter. Manfred Yu’s Acuta Capital Partners also made a $0.5 million investment in the stock during the quarter. The other funds with brand new ISEE positions are Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund, Peter Muller’s PDT Partners, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to IVERIC bio, Inc. (NASDAQ:ISEE). These stocks are Stellus Capital Investment Corporation (NYSE:SCM), Eagle Bulk Shipping Inc. (NASDAQ:EGLE), Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN), and Mastech Digital, Inc. (NYSE:MHH). All of these stocks’ market caps are similar to ISEE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SCM 2 2253 0
EGLE 8 85844 -4
EDN 2 73 -3
MHH 4 1750 2
Average 4 22480 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $74 million in ISEE’s case. Eagle Bulk Shipping Inc. (NASDAQ:EGLE) is the most popular stock in this table. On the other hand Stellus Capital Investment Corporation (NYSE:SCM) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks IVERIC bio, Inc. (NASDAQ:ISEE) is more popular among hedge funds. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. Unfortunately ISEE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ISEE were disappointed as the stock returned 19.2% during the second quarter (through June 10th) 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.