Were Hedge Funds Illusioned With Vertex Pharmaceuticals Incorporated (VRTX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and determine whether hedge funds skillfully traded this stock.

Is Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) ready to rally soon? The smart money was taking a bearish view. The number of long hedge fund positions shrunk by 5 lately. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 55 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 68. Our calculations also showed that VRTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 go over the key hedge fund action encompassing Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

Do Hedge Funds Think VRTX Is A Good Stock To Buy Now?

At third quarter’s end, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in VRTX over the last 25 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is VRTX A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), which was worth $343.1 million at the end of the third quarter. On the second spot was D E Shaw which amassed $311 million worth of shares. ARK Investment Management, GLG Partners, and Impax Asset Management 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 Great Point Partners allocated the biggest weight to Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), around 3.59% of its 13F portfolio. Rhenman & Partners Asset Management is also relatively very bullish on the stock, earmarking 2.1 percent of its 13F equity portfolio to VRTX.

Seeing as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) has experienced a decline in interest from the smart money, we can see that there lies a certain “tier” of hedgies who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest stake of the 750 funds followed by Insider Monkey, valued at about $65.3 million in stock, and Chris Rokos’s Rokos Capital Management was right behind this move, as the fund sold off about $51.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) but similarly valued. These stocks are Roper Technologies Inc. (NYSE:ROP), Monster Beverage Corp (NASDAQ:MNST), EOG Resources Inc (NYSE:EOG), Palo Alto Networks Inc (NYSE:PANW), IHS Markit Ltd. (NASDAQ:INFO), Global Payments Inc (NYSE:GPN), and IQVIA Holdings, Inc. (NYSE:IQV). All of these stocks’ market caps match VRTX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROP 45 1667275 4
MNST 42 2134498 -4
EOG 47 1024547 12
PANW 73 5899838 4
INFO 64 6723219 3
GPN 68 3462603 2
IQV 66 3756655 -3
Average 57.9 3524091 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.9 hedge funds with bullish positions and the average amount invested in these stocks was $3524 million. That figure was $2713 million in VRTX’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Monster Beverage Corp (NASDAQ:MNST) is the least popular one with only 42 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VRTX is 45.2. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on VRTX as the stock returned 34% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.

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