Is Scholar Rock Holding Corporation (SRRK) A Good Stock To Buy?

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 873 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 June 30th. In this article we look at what those investors think of Scholar Rock Holding Corporation (NASDAQ:SRRK).

Is Scholar Rock Holding Corporation (NASDAQ:SRRK) a marvelous investment now? Prominent investors were cutting their exposure. The number of bullish hedge fund positions were trimmed by 4 in recent months. Scholar Rock Holding Corporation (NASDAQ:SRRK) was in 10 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 14. Our calculations also showed that SRRK isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 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.

Keeping this in mind let’s analyze the latest hedge fund action surrounding Scholar Rock Holding Corporation (NASDAQ:SRRK).

Do Hedge Funds Think SRRK Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRRK over the last 24 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.

Of the funds tracked by Insider Monkey, Jeremy Green’s Redmile Group has the most valuable position in Scholar Rock Holding Corporation (NASDAQ:SRRK), worth close to $66.7 million, amounting to 1% of its total 13F portfolio. The second most bullish fund manager is Israel Englander of Millennium Management, with a $5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish encompass Alan Frazier’s Frazier Healthcare Partners, Ken Griffin’s Citadel Investment Group and Michael Rockefeller and KarláKroeker’s Woodline Partners. In terms of the portfolio weights assigned to each position Redmile Group allocated the biggest weight to Scholar Rock Holding Corporation (NASDAQ:SRRK), around 0.99% of its 13F portfolio. Frazier Healthcare Partners is also relatively very bullish on the stock, designating 0.42 percent of its 13F equity portfolio to SRRK.

Due to the fact that Scholar Rock Holding Corporation (NASDAQ:SRRK) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few funds that decided to sell off their positions entirely heading into Q3. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $21.7 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also dumped its stock, about $7.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Scholar Rock Holding Corporation (NASDAQ:SRRK). These stocks are Summit Hotel Properties Inc (NYSE:INN), Keros Therapeutics, Inc. (NASDAQ:KROS), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), German American Bancorp., Inc. (NASDAQ:GABC), Apria, Inc. (NASDAQ:APR), Cars.com Inc. (NYSE:CARS), and Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM). This group of stocks’ market values match SRRK’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.7 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $88 million in SRRK’s case. Cars.com Inc. (NYSE:CARS) is the most popular stock in this table. On the other hand German American Bancorp., Inc. (NASDAQ:GABC) is the least popular one with only 9 bullish hedge fund positions. Scholar Rock Holding Corporation (NASDAQ:SRRK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SRRK is 28. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on SRRK as the stock returned 12.9% since the end of the second quarter (through 9/27) and outperformed the market by an even larger margin.

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