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Were Hedge Funds Right About Flocking Into Horizon Pharma plc (HZNP) ?

The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Horizon Pharma plc (NASDAQ:HZNP), and what that likely means for the prospects of the company and its stock.

Is Horizon Pharma plc (NASDAQ:HZNP) an exceptional investment right now? Investors who are in the know are buying. The number of bullish hedge fund positions moved up by 7 in recent months. Our calculations also showed that hznp isn’t among the 30 most popular stocks among hedge funds. HZNP was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with HZNP holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

PAULSON & CO

We’re going to take a look at the fresh hedge fund action regarding Horizon Pharma plc (NASDAQ:HZNP).

How are hedge funds trading Horizon Pharma plc (NASDAQ:HZNP)?

At Q4’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HZNP over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With HZNP Positions

Among these funds, Scopia Capital held the most valuable stake in Horizon Pharma plc (NASDAQ:HZNP), which was worth $209.6 million at the end of the third quarter. On the second spot was Paulson & Co which amassed $140.1 million worth of shares. Moreover, Deerfield Management, Renaissance Technologies, and venBio Select Advisor were also bullish on Horizon Pharma plc (NASDAQ:HZNP), allocating a large percentage of their portfolios to this stock.

Consequently, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most outsized position in Horizon Pharma plc (NASDAQ:HZNP). Adage Capital Management had $11.2 million invested in the company at the end of the quarter. Ori Hershkovitz’s Nexthera Capital also made a $7.7 million investment in the stock during the quarter. The following funds were also among the new HZNP investors: Steve Cohen’s Point72 Asset Management, Minhua Zhang’s Weld Capital Management, and Youlia Miteva’s Proxima Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Horizon Pharma plc (NASDAQ:HZNP) but similarly valued. We will take a look at PNM Resources, Inc. (NYSE:PNM), The Brink’s Company (NYSE:BCO), Allogene Therapeutics, Inc. (NASDAQ:ALLO), and Chegg Inc (NYSE:CHGG). This group of stocks’ market valuations resemble HZNP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PNM 18 323145 -1
BCO 22 491477 -2
ALLO 10 130155 10
CHGG 21 380742 0
Average 17.75 331380 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $873 million in HZNP’s case. The Brink’s Company (NYSE:BCO) is the most popular stock in this table. On the other hand Allogene Therapeutics, Inc. (NASDAQ:ALLO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Horizon Pharma plc (NASDAQ:HZNP) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on HZNP as the stock returned 25.5% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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