Were Hedge Funds Right About Ascendis Pharma A/S (ASND)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Ascendis Pharma A/S (NASDAQ:ASND)? The smart money sentiment can provide an answer to this question.

Ascendis Pharma A/S (NASDAQ:ASND) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistic is 38. ASND has seen an increase in hedge fund sentiment lately. There were 28 hedge funds in our database with ASND holdings at the end of March. Our calculations also showed that ASND isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

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 are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the fresh hedge fund action encompassing Ascendis Pharma A/S (NASDAQ:ASND).

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

At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ASND over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, RA Capital Management was the largest shareholder of Ascendis Pharma A/S (NASDAQ:ASND), with a stake worth $895.4 million reported as of the end of June. Trailing RA Capital Management was Baker Bros. Advisors, which amassed a stake valued at $465.7 million. Avoro Capital Advisors (venBio Select Advisor), Vivo Capital, and Lone Pine Capital 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 Ascendis Pharma A/S (NASDAQ:ASND), around 14.37% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, setting aside 8.69 percent of its 13F equity portfolio to ASND.

Now, some big names have been driving this bullishness. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, created the most outsized position in Ascendis Pharma A/S (NASDAQ:ASND). Avoro Capital Advisors (venBio Select Advisor) had $249.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $2.7 million position during the quarter. The following funds were also among the new ASND investors: Donald Sussman’s Paloma Partners and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).

Let’s check out hedge fund activity in other stocks similar to Ascendis Pharma A/S (NASDAQ:ASND). These stocks are Brooks Automation, Inc. (NASDAQ:BRKS), Freshpet Inc (NASDAQ:FRPT), Harley-Davidson, Inc. (NYSE:HOG), Mattel, Inc. (NASDAQ:MAT), First Financial Bankshares Inc (NASDAQ:FFIN), Cabot Oil & Gas Corporation (NYSE:COG), and Envista Holdings Corporation (NYSE:NVST). This group of stocks’ market valuations resemble ASND’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $2290 million in ASND’s case. Envista Holdings Corporation (NYSE:NVST) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 8 bullish hedge fund positions. Ascendis Pharma A/S (NASDAQ:ASND) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ASND is 63.9. 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 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on ASND as the stock returned 22.1% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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