Should You Follow Hedge Fund Sentiment Of Wednesday’s Top 3 Healthcare Gainers?

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As we have covered the top losers among healthcare stocks earlier today, which included three biotech companies, it’s time to take a look at some companies that have been gaining ground. These companies are not very large in terms of market capitalization, hence their surges are not totally unexpected. Let’s take a closer look at the developments behind the appreciation of the stocks of Clovis Oncology Inc (NASDAQ:CLVS)Vitae Pharmaceuticals Inc (NASDAQ:VTAE), and Akebia Therapeutics Inc (NASDAQ:AKBA) and see what hedge funds think about them,based on the data from the latest round of 13F filings.

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Hedge fund sentiment is a metric that is usually under the radar for most retail investors, mostly because it is assessed through 13F filings which are published with a delay of up to 45 days. However, we have conducted backtests using 13F filings between 1999 and 2012 and used a 60-day delay to be on the safe side and still obtained some interesting results. We determined that the 50 most popular stocks among hedge funds, which mainly include large- and mega-cap companies, trail the market by an average of seven basis points per month, mostly because these companies are followed by everybody and are efficiently priced. However, when it came to small-cap picks of major money managers, we determined that these investments outrun the market by around 95 basis points per month. Based on these results, we have developed a small-cap strategy that involves imitating a portfolio of the 15 most popular small-cap ideas among a pool of over 700 hedge funds. This strategy has returned 118% since August 2012 and managed to outperform the market by more than 60 percentage points (read more details here).

We will start with Clovis Oncology Inc (NASDAQ:CLVS), which is the largest company in terms of market cap among those covered in this piece. Its stock advanced by almost 17% in intraday trading on a volume of 2.29 million shares, almost four-times higher than average. The main reason for this jump was the data presented by Clovis at the World Conference on Lung Cancer in Denver, related to its Tiger-X trials of rociletinib in patients with lung cancer. Investors from our database seem to be fond of Clovis Oncology Inc (NASDAQ:CLVS), as during the second quarter the number of investors with long positions in the company went up to 29 from 21, while the aggregate value of their stakes surged to $864 million from $650.76 million, as the stock jumped by 18% during the same period. Moreover, it’s important to point out that these funds held nearly 29% of Clovis Oncology Inc (NASDAQ:CLVS)’s shares at the end of June. Among these funds, William Leland Edwards‘ Palo Alto Investors held the largest stake, of 2.40 million shares worth $211.01 million at the end of June, which represented more than 9% of its public equity portfolio. Healthcare-focused fund Orbimed Advisors, led by Samuel Isaly, was the second-largest shareholder, holding over 1.0 million shares as of the end of June.

Vitae Pharmaceuticals Inc (NASDAQ:VTAE)‘s stock surged by over 70% during the day on a huge volume of 6.70 million shares, compared to an average of just 88,900 shares, on the back of positive top-line results of its Phase 1 trial involving VTP-43742. This represents Vitae Pharmaceuticals Inc (NASDAQ:VTAE)’s product candidate for autoimmune disorders and showed a good level of tolerance across 53 healthy volunteers. However, likely due to the company’s small size and the fact that it has not reported any substantial financial results for the last several quarters, hedge funds are keeping their distance. At the end of June, nine funds held $65.14 million worth of Vitae Pharmaceuticals Inc (NASDAQ:VTAE)’s stock, up from $36.31 million a quarter earlier. While the stock had dropped by over 50% since the beginning of the year heading into today, it was actually up by about 23% in the second quarter, which accounted for some of the rise in aggregate holdings, though hedge funds that held long positions also purchased more shares between April and June. Phill Gross and Robert Atchinson‘s Adage Capital Management added 625,000 shares to its stake, taking it to 1.03 million shares, while Israel Englander’s Millennium Management and Steve Cohen’s Point72 Asset Management raised their positions to 763,400 shares and 444,800 shares respectively.

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