How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Karyopharm Therapeutics Inc (NASDAQ:KPTI) and determine whether hedge funds had an edge regarding this stock.
Karyopharm Therapeutics Inc (NASDAQ:KPTI) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of June. Our calculations also showed that KPTI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare KPTI to other stocks including Steelcase Inc. (NYSE:SCS), Marten Transport, Ltd (NASDAQ:MRTN), and Urban Edge Properties (NYSE:UE) to get a better sense of its popularity.
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.
Phillip Gross of Adage Capital
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s take a gander at the fresh hedge fund action regarding Karyopharm Therapeutics Inc (NASDAQ:KPTI).
Hedge fund activity in Karyopharm Therapeutics Inc (NASDAQ:KPTI)
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in KPTI a year ago. 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 Karyopharm Therapeutics Inc (NASDAQ:KPTI) was held by Avoro Capital Advisors (venBio Select Advisor), which reported holding $132.6 million worth of stock at the end of September. It was followed by Consonance Capital Management with a $123 million position. Other investors bullish on the company included Palo Alto Investors, Adage Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to Karyopharm Therapeutics Inc (NASDAQ:KPTI), around 7.37% of its 13F portfolio. Palo Alto Investors is also relatively very bullish on the stock, setting aside 4.8 percent of its 13F equity portfolio to KPTI.
Seeing as Karyopharm Therapeutics Inc (NASDAQ:KPTI) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of fund managers that decided to sell off their full holdings last quarter. Interestingly, Matthew L Pinz’s Pinz Capital dropped the largest position of the 750 funds watched by Insider Monkey, worth an estimated $1.7 million in stock, and Neil Shahrestani’s Ikarian Capital was right behind this move, as the fund dropped about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Karyopharm Therapeutics Inc (NASDAQ:KPTI). These stocks are Steelcase Inc. (NYSE:SCS), Marten Transport, Ltd (NASDAQ:MRTN), Urban Edge Properties (NYSE:UE), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), Two Harbors Investment Corp (NYSE:TWO), Skyline Champion Corporation (NYSE:SKY), and Methanex Corporation (NASDAQ:MEOH). This group of stocks’ market caps are closest to KPTI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCS | 22 | 89186 | -1 |
| MRTN | 19 | 63328 | 3 |
| UE | 25 | 104705 | 4 |
| GGAL | 11 | 32517 | 5 |
| TWO | 16 | 44443 | -8 |
| SKY | 23 | 206283 | 0 |
| MEOH | 17 | 74700 | 5 |
| Average | 19 | 87880 | 1.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $575 million in KPTI’s case. Urban Edge Properties (NYSE:UE) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 11 bullish hedge fund positions. Karyopharm Therapeutics Inc (NASDAQ:KPTI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KPTI is 67. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately KPTI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KPTI were disappointed as the stock returned -22.9% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
