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These Hedge Funds Cashed Out Of Retrophin Inc (RTRX) Too Early

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Retrophin Inc (NASDAQ:RTRX) based on that data.

Retrophin Inc (NASDAQ:RTRX) was in 18 hedge funds’ portfolios at the end of September. RTRX has experienced a decrease in hedge fund sentiment of late. There were 19 hedge funds in our database with RTRX positions at the end of the previous quarter. Our calculations also showed that RTRX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Peter Kolchinsky of RA Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action regarding Retrophin Inc (NASDAQ:RTRX).

What have hedge funds been doing with Retrophin Inc (NASDAQ:RTRX)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in RTRX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, RA Capital Management held the most valuable stake in Retrophin Inc (NASDAQ:RTRX), which was worth $46.2 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $37.9 million worth of shares. Scopia Capital, Consonance Capital Management, and Great Point Partners 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 RA Capital Management allocated the biggest weight to Retrophin Inc (NASDAQ:RTRX), around 2.75% of its 13F portfolio. Consonance Capital Management is also relatively very bullish on the stock, designating 2.65 percent of its 13F equity portfolio to RTRX.

Because Retrophin Inc (NASDAQ:RTRX) has faced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of funds that slashed their positions entirely last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, worth an estimated $4.8 million in stock. Robert B. Gillam’s fund, McKinley Capital Management, also dumped its stock, about $4.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Retrophin Inc (NASDAQ:RTRX) but similarly valued. These stocks are Viking Therapeutics, Inc. (NASDAQ:VKTX), Carter Bank & Trust (NASDAQ:CARE), MidWestOne Financial Group, Inc. (NASDAQ:MOFG), and Fortuna Silver Mines Inc. (NYSE:FSM). This group of stocks’ market valuations resemble RTRX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VKTX 15 35723 -2
CARE 4 27685 -1
MOFG 9 12095 4
FSM 12 55835 0
Average 10 32835 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $224 million in RTRX’s case. Viking Therapeutics, Inc. (NASDAQ:VKTX) is the most popular stock in this table. On the other hand Carter Bank & Trust (NASDAQ:CARE) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Retrophin Inc (NASDAQ:RTRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on RTRX as the stock returned 19.7% during the first two months of Q4 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.

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

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