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Were Hedge Funds Right About Dumping Ultragenyx Pharmaceutical Inc (RARE)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).

Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) investors should pay attention to a decrease in hedge fund interest recently. RARE was in 16 hedge funds’ portfolios at the end of June. There were 18 hedge funds in our database with RARE positions at the end of the previous quarter. Our calculations also showed that RARE isn’t among the 30 most popular stocks among hedge funds (view 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.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Oleg Nodelman EcoR1 Capital

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. Let’s view the key hedge fund action surrounding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).

What does smart money think about Ultragenyx Pharmaceutical Inc (NASDAQ:RARE)?

At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RARE over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RARE Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the number one position in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), worth close to $93.5 million, corresponding to 0.4% of its total 13F portfolio. The second largest stake is held by Kris Jenner, Gordon Bussard, Graham McPhail of Rock Springs Capital Management, with a $36.8 million position; 1.3% of its 13F portfolio is allocated to the company. Some other peers that are bullish consist of Oleg Nodelman’s EcoR1 Capital, Ken Griffin’s Citadel Investment Group and Jacob Doft’s Highline Capital Management.

Due to the fact that Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that elected to cut their positions entirely last quarter. It’s worth mentioning that Joseph Edelman’s Perceptive Advisors cut the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $3.5 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dropped about $1.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) but similarly valued. We will take a look at Sabra Health Care REIT Inc (NASDAQ:SBRA), UniFirst Corporation (NYSE:UNF), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), and Omnicell, Inc. (NASDAQ:OMCL). This group of stocks’ market valuations resemble RARE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBRA 10 36381 1
UNF 23 182723 2
BJ 33 437524 11
OMCL 18 96471 3
Average 21 188275 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $249 million in RARE’s case. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 10 bullish hedge fund positions. Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) 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 RARE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RARE investors were disappointed as the stock returned -32.6% 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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