Should I Buy Insmed Incorporated (INSM)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Insmed Incorporated (NASDAQ:INSM) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Insmed Incorporated (NASDAQ:INSM) investors should be aware of an increase in hedge fund sentiment recently. Insmed Incorporated (NASDAQ:INSM) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 32. Our calculations also showed that INSM 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Leland Edwards of Palo Alto Investors

William Leland Edwards of Palo Alto Investors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s view the latest hedge fund action regarding Insmed Incorporated (NASDAQ:INSM).

What have hedge funds been doing with Insmed Incorporated (NASDAQ:INSM)?

At Q2’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INSM over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Palo Alto Investors was the largest shareholder of Insmed Incorporated (NASDAQ:INSM), with a stake worth $165.3 million reported as of the end of September. Trailing Palo Alto Investors was Baker Bros. Advisors, which amassed a stake valued at $83.3 million. Citadel Investment Group, Deerfield Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to Insmed Incorporated (NASDAQ:INSM), around 9.93% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, designating 3.27 percent of its 13F equity portfolio to INSM.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Duquesne Capital, managed by Stanley Druckenmiller, assembled the most valuable position in Insmed Incorporated (NASDAQ:INSM). Duquesne Capital had $33.8 million invested in the company at the end of the quarter. Albert Cha and Frank Kung’s Vivo Capital also initiated a $19.5 million position during the quarter. The other funds with brand new INSM positions are Minhua Zhang’s Weld Capital Management, Noam Gottesman’s GLG Partners, and Andre F. Perold’s HighVista Strategies.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Insmed Incorporated (NASDAQ:INSM) but similarly valued. These stocks are MGIC Investment Corporation (NYSE:MTG), NorthWestern Corporation (NYSE:NWE), Mantech International Corp (NASDAQ:MANT), White Mountains Insurance Group Ltd (NYSE:WTM), Avnet, Inc. (NASDAQ:AVT), Burning Rock Biotech Limited (NASDAQ:BNR), and H&R Block, Inc. (NYSE:HRB). This group of stocks’ market caps are similar to INSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTG 40 262992 -1
NWE 22 96622 3
MANT 16 29262 -1
WTM 11 116150 -5
AVT 29 553892 5
BNR 18 240649 18
HRB 24 206807 5
Average 22.9 215196 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $614 million in INSM’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand White Mountains Insurance Group Ltd (NYSE:WTM) is the least popular one with only 11 bullish hedge fund positions. Insmed Incorporated (NASDAQ:INSM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for INSM is 70.9. 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 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on INSM, though not to the same extent, as the stock returned 10.2% since the end of June (through September 14th) and outperformed the market as well.

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