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Were Hedge Funds Right About Dumping Supernus Pharmaceuticals Inc (SUPN)?

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Supernus Pharmaceuticals Inc (NASDAQ:SUPN), and what that likely means for the prospects of the company and its stock.

Supernus Pharmaceuticals Inc (NASDAQ:SUPN) was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. SUPN has seen a decrease in support from the world’s most elite money managers recently. There were 22 hedge funds in our database with SUPN holdings at the end of the previous quarter. Our calculations also showed that SUPN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

SUPN_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the new hedge fund action surrounding Supernus Pharmaceuticals Inc (NASDAQ:SUPN).

What have hedge funds been doing with Supernus Pharmaceuticals Inc (NASDAQ:SUPN)?

At Q2’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in SUPN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Paul Marshall Marshall Wace

More specifically, Renaissance Technologies was the largest shareholder of Supernus Pharmaceuticals Inc (NASDAQ:SUPN), with a stake worth $20 million reported as of the end of March. Trailing Renaissance Technologies was Marshall Wace LLP, which amassed a stake valued at $18.5 million. Winton Capital Management, Millennium Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since Supernus Pharmaceuticals Inc (NASDAQ:SUPN) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies that decided to sell off their full holdings heading into Q3. It’s worth mentioning that David Costen Haley’s HBK Investments dropped the biggest investment of all the hedgies followed by Insider Monkey, valued at about $2.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $1.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Supernus Pharmaceuticals Inc (NASDAQ:SUPN) but similarly valued. These stocks are Uniti Group Inc. (NASDAQ:UNIT), McDermott International, Inc. (NYSE:MDR), MaxLinear, Inc. (NYSE:MXL), and SciPlay Corporation (NASDAQ:SCPL). This group of stocks’ market valuations match SUPN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNIT 21 184179 0
MDR 22 289410 0
MXL 7 18569 1
SCPL 16 95579 16
Average 16.5 146934 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $94 million in SUPN’s case. McDermott International, Inc. (NYSE:MDR) is the most popular stock in this table. On the other hand MaxLinear, Inc. (NYSE:MXL) is the least popular one with only 7 bullish hedge fund positions. Supernus Pharmaceuticals Inc (NASDAQ:SUPN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SUPN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SUPN investors were disappointed as the stock returned -17% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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