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Were Hedge Funds Right About Incyte Corporation (INCY)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Incyte Corporation (NASDAQ:INCY) and determine whether hedge funds skillfully traded this stock.

Incyte Corporation (NASDAQ:INCY) was in 40 hedge funds’ portfolios at the end of March. INCY has seen a decrease in hedge fund interest lately. There were 46 hedge funds in our database with INCY holdings at the end of the previous quarter. Our calculations also showed that INCY 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.

If you’d ask most traders, hedge funds are assumed to be unimportant, old investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers hone in on the moguls of this group, approximately 850 funds. Most estimates calculate that this group of people handle bulk of the smart money’s total capital, and by tailing their matchless investments, Insider Monkey has formulated several investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Roberto Mignone of Bridger Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 let’s take a glance at the new hedge fund action encompassing Incyte Corporation (NASDAQ:INCY).

How are hedge funds trading Incyte Corporation (NASDAQ:INCY)?

At Q1’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 39 hedge funds with a bullish position in INCY a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Julian Baker and Felix Baker’s Baker Bros. Advisors has the biggest position in Incyte Corporation (NASDAQ:INCY), worth close to $2.3418 billion, comprising 14.4% of its total 13F portfolio. Coming in second is Renaissance Technologies, holding a $337 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Cliff Asness’s AQR Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Baker Bros. Advisors allocated the biggest weight to Incyte Corporation (NASDAQ:INCY), around 14.42% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, dishing out 4.5 percent of its 13F equity portfolio to INCY.

Because Incyte Corporation (NASDAQ:INCY) has faced bearish sentiment from hedge fund managers, logic holds that there were a few hedge funds that slashed their full holdings by the end of the first quarter. Intriguingly, David Goel and Paul Ferri’s Matrix Capital Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $168.9 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also cut its stock, about $18.9 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 6 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Incyte Corporation (NASDAQ:INCY). We will take a look at Northern Trust Corporation (NASDAQ:NTRS), Church & Dwight Co., Inc. (NYSE:CHD), Smith & Nephew plc (NYSE:SNN), and Tiffany & Co. (NYSE:TIF). All of these stocks’ market caps match INCY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTRS 27 330348 -8
CHD 36 506943 -1
SNN 9 89054 6
TIF 69 2915572 7
Average 35.25 960479 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $960 million. That figure was $3325 million in INCY’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 9 bullish hedge fund positions. Incyte Corporation (NASDAQ:INCY) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on INCY as the stock returned 42% in Q2 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.