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Were Hedge Funds Right About Arvinas, Inc. (ARVN)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Arvinas, Inc. (NASDAQ:ARVN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Arvinas, Inc. (NASDAQ:ARVN) investors should pay attention to an increase in hedge fund sentiment lately. Our calculations also showed that ARVN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Kolchinsky of RA Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action surrounding Arvinas, Inc. (NASDAQ:ARVN).

What have hedge funds been doing with Arvinas, Inc. (NASDAQ:ARVN)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 117% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in ARVN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Arvinas, Inc. (NASDAQ:ARVN) was held by RA Capital Management, which reported holding $150.9 million worth of stock at the end of September. It was followed by OrbiMed Advisors with a $78 million position. Other investors bullish on the company included EcoR1 Capital, Deerfield Management, and Hillhouse Capital Management. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Arvinas, Inc. (NASDAQ:ARVN), around 5.04% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 4.58 percent of its 13F equity portfolio to ARVN.

Consequently, key hedge funds were breaking ground themselves. EcoR1 Capital, managed by Oleg Nodelman, initiated the biggest position in Arvinas, Inc. (NASDAQ:ARVN). EcoR1 Capital had $55 million invested in the company at the end of the quarter. Jeffrey Jay and David Kroin’s Great Point Partners also made a $22.6 million investment in the stock during the quarter. The following funds were also among the new ARVN investors: Joseph Edelman’s Perceptive Advisors, Renaissance Technologies, and D. E. Shaw’s D E Shaw.

Let’s also examine hedge fund activity in other stocks similar to Arvinas, Inc. (NASDAQ:ARVN). We will take a look at Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Calavo Growers, Inc. (NASDAQ:CVGW), Uniti Group Inc. (NASDAQ:UNIT), and Akcea Therapeutics, Inc. (NASDAQ:AKCA). This group of stocks’ market caps are closest to ARVN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDRX 31 209934 11
CVGW 23 155923 3
UNIT 15 157740 -9
AKCA 10 17000 5
Average 19.75 135149 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $473 million in ARVN’s case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand Akcea Therapeutics, Inc. (NASDAQ:AKCA) is the least popular one with only 10 bullish hedge fund positions. Arvinas, Inc. (NASDAQ:ARVN) is not the most popular stock in this group but hedge fund interest is still above average. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. Hedge funds were also right about betting on ARVN as the stock returned 3.6% in 2020 (through April 6th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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