Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM).
Is MIRM a good stock to buy now? Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. MIRM shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 13 hedge funds in our database with MIRM positions at the end of the second quarter. Our calculations also showed that MIRM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to view the latest hedge fund action surrounding Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM).
Do Hedge Funds Think MIRM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in MIRM 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.
Of the funds tracked by Insider Monkey, Frazier Healthcare Partners, managed by Alan Frazier, holds the number one position in Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM). Frazier Healthcare Partners has a $68.7 million position in the stock, comprising 6.2% of its 13F portfolio. The second most bullish fund manager is Deerfield Management, led by James E. Flynn, holding a $66.5 million position; 1.6% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism consist of Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Julian Baker and Felix Baker’s Baker Bros. Advisors and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Frazier Healthcare Partners allocated the biggest weight to Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM), around 6.17% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 1.62 percent of its 13F equity portfolio to MIRM.
Seeing as Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, totaling about $1.9 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also dropped its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) but similarly valued. We will take a look at GAN Limited (NASDAQ:GAN), DMC Global Inc. (NASDAQ:BOOM), Northfield Bancorp Inc (NASDAQ:NFBK), US Concrete Inc (NASDAQ:USCR), Homology Medicines, Inc. (NASDAQ:FIXX), CAI International Inc (NYSE:CAI), and Plantronics, Inc. (NYSE:PLT). This group of stocks’ market caps match MIRM’s market cap.
|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 9.3 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $179 million in MIRM’s case. Plantronics, Inc. (NYSE:PLT) is the most popular stock in this table. On the other hand DMC Global Inc. (NASDAQ:BOOM) is the least popular one with only 6 bullish hedge fund positions. Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MIRM is 40.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on MIRM as the stock returned 23.8% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.