Were Hedge Funds Right About Harrow Health, Inc. (HROW)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Harrow Health, Inc. (NASDAQ:HROW) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Harrow Health, Inc. (NASDAQ:HROW) has seen a decrease in enthusiasm from smart money in recent months. HROW was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with HROW holdings at the end of the previous quarter. Our calculations also showed that HROW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Michael Castor of Sio Capital

Michael Castor of Sio Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 biggest gold mining companies to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the key hedge fund action encompassing Harrow Health, Inc. (NASDAQ:HROW).

What does smart money think about Harrow Health, Inc. (NASDAQ:HROW)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HROW over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Opaleye Management, managed by James A. Silverman, holds the largest position in Harrow Health, Inc. (NASDAQ:HROW). Opaleye Management has a $9.6 million position in the stock, comprising 2.5% of its 13F portfolio. On Opaleye Management’s heels is Renaissance Technologies, holding a $5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise Nick Thakore’s Diametric Capital, Michael Castor’s Sio Capital and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital. In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to Harrow Health, Inc. (NASDAQ:HROW), around 2.53% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, earmarking 2.4 percent of its 13F equity portfolio to HROW.

Judging by the fact that Harrow Health, Inc. (NASDAQ:HROW) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who were dropping their entire stakes in the first quarter. Intriguingly, Brandon Osten’s Venator Capital Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $2.1 million in stock, and David Nguyen and Nancy Oh’s One68 Global Capital was right behind this move, as the fund said goodbye to about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Harrow Health, Inc. (NASDAQ:HROW) but similarly valued. These stocks are Millendo Therapeutics, Inc. (NASDAQ:MLND), Palatin Technologies, Inc. (NYSE:PTN), Axovant Gene Therapies Ltd. (NASDAQ:AXGT), and Intevac, Inc. (NASDAQ:IVAC). This group of stocks’ market values are closest to HROW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MLND 13 35175 2
PTN 5 1040 -2
AXGT 11 27247 4
IVAC 8 15848 -1
Average 9.25 19828 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $21 million in HROW’s case. Millendo Therapeutics, Inc. (NASDAQ:MLND) is the most popular stock in this table. On the other hand Palatin Technologies, Inc. (NYSE:PTN) is the least popular one with only 5 bullish hedge fund positions. Harrow Health, Inc. (NASDAQ:HROW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on HROW as the stock returned 39.5% in Q2 (through June 25th) 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.