We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Regulus Therapeutics Inc (NASDAQ:RGLS).
Hedge fund interest in Regulus Therapeutics Inc (NASDAQ:RGLS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RGLS 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as ADiTx Therapeutics, Inc. (NASDAQ:ADTX), Good Times Restaurants Inc. (NASDAQ:GTIM), and ENDRA Life Sciences Inc. (NASDAQ:NDRA) to gather more data points.
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 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.
Alex Denner of Sarissa Capital Management
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 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 take a peek at the new hedge fund action surrounding Regulus Therapeutics Inc (NASDAQ:RGLS).
Hedge fund activity in Regulus Therapeutics Inc (NASDAQ:RGLS)
At the end of September, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in RGLS over the last 21 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mark Lampert’s Biotechnology Value Fund / BVF Inc has the number one position in Regulus Therapeutics Inc (NASDAQ:RGLS), worth close to $1.7 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Sarissa Capital Management, led by Alex Denner, holding a $1 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Regulus Therapeutics Inc (NASDAQ:RGLS), around 0.11% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to RGLS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Renaissance Technologies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s now review hedge fund activity in other stocks similar to Regulus Therapeutics Inc (NASDAQ:RGLS). These stocks are ADiTx Therapeutics, Inc. (NASDAQ:ADTX), Good Times Restaurants Inc. (NASDAQ:GTIM), ENDRA Life Sciences Inc. (NASDAQ:NDRA), Youngevity International, Inc. (NASDAQ:YGYI), Pacific Drilling SA (NYSE:PACD), Eyegate Pharmaceuticals, Inc. (NASDAQ:EYEG), and FARMMI, INC. (NASDAQ:FAMI). All of these stocks’ market caps match RGLS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADTX | 1 | 439 | 0 |
| GTIM | 2 | 713 | 0 |
| NDRA | 1 | 33 | -1 |
| YGYI | 3 | 75 | -1 |
| PACD | 3 | 90 | -2 |
| EYEG | 1 | 7117 | -1 |
| FAMI | 1 | 327 | 0 |
| Average | 1.7 | 1256 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 1.7 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $3 million in RGLS’s case. Youngevity International, Inc. (NASDAQ:YGYI) is the most popular stock in this table. On the other hand ADiTx Therapeutics, Inc. (NASDAQ:ADTX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Regulus Therapeutics Inc (NASDAQ:RGLS) is more popular among hedge funds. Our overall hedge fund sentiment score for RGLS is 63.6. 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 returned 30.7% in 2020 through November 27th but still managed to beat the market by 16.1 percentage points. Hedge funds were also right about betting on RGLS as the stock returned 25.5% since the end of September (through 11/27) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
