It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA).
Is Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) an attractive investment today? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that KNSA isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to check out the key hedge fund action encompassing Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA).
What have hedge funds been doing with Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA)?
Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KNSA over the last 14 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.
The largest stake in Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) was held by Baker Bros. Advisors, which reported holding $84.3 million worth of stock at the end of September. It was followed by Deerfield Management with a $31.7 million position. Other investors bullish on the company included Cormorant Asset Management, Vivo Capital, and Millennium Management.
Seeing as Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few funds that decided to sell off their positions entirely in the third quarter. At the top of the heap, Lei Zhang’s Hillhouse Capital Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $146.3 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $2.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA). These stocks are US Ecology Inc. (NASDAQ:ECOL), WMS Industries Inc. (NYSE:WMS), Summit Materials Inc (NYSE:SUM), and Seaspan Corporation (NYSE:SSW). This group of stocks’ market values resemble KNSA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECOL | 11 | 10350 | 1 |
| WMS | 17 | 298539 | 0 |
| SUM | 20 | 408215 | -1 |
| SSW | 12 | 335655 | 4 |
| Average | 15 | 263190 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $151 million in KNSA’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) is even less popular than ECOL. Hedge funds dodged a bullet by taking a bearish stance towards KNSA. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately KNSA wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); KNSA investors were disappointed as the stock returned -41.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.