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Were Hedge Funds Right About Overlooking Galapagos NV (GLPG)?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Galapagos NV (NASDAQ:GLPG).

Galapagos NV (NASDAQ:GLPG) shareholders have witnessed a decrease in hedge fund sentiment of late. GLPG was in 14 hedge funds’ portfolios at the end of June. There were 16 hedge funds in our database with GLPG holdings at the end of the previous quarter. Our calculations also showed that GLPG 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.

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.

GLPG_oct2019

Unlike this former hedge fund manager 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 check out the key hedge fund action regarding Galapagos NV (NASDAQ:GLPG).

How have hedgies been trading Galapagos NV (NASDAQ:GLPG)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GLPG over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Kris Jenner - Rock Springs Capital

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bihua Chen’s Cormorant Asset Management has the most valuable position in Galapagos NV (NASDAQ:GLPG), worth close to $22.6 million, comprising 1.3% of its total 13F portfolio. Coming in second is Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, which holds a $21.3 million position; 0.8% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism comprise James E. Flynn’s Deerfield Management, Charles Clough’s Clough Capital Partners and Nathan Fischel’s DAFNA Capital Management.

Due to the fact that Galapagos NV (NASDAQ:GLPG) has experienced falling interest from the smart money, we can see that there was a specific group of funds that slashed their entire stakes in the second quarter. Intriguingly, Panayotis Takis Sparaggis’s Alkeon Capital Management dropped the largest position of all the hedgies tracked by Insider Monkey, comprising about $20.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund said goodbye to about $3.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Galapagos NV (NASDAQ:GLPG) but similarly valued. These stocks are Albemarle Corporation (NYSE:ALB), FLIR Systems, Inc. (NASDAQ:FLIR), CAE, Inc. (NYSE:CAE), and AMERCO (NASDAQ:UHAL). All of these stocks’ market caps are closest to GLPG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALB 18 202553 -7
FLIR 20 434610 -12
CAE 10 169159 0
UHAL 15 400823 3
Average 15.75 301786 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $97 million in GLPG’s case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Galapagos NV (NASDAQ:GLPG) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on GLPG as the stock returned 18.4% during the same time frame and outperformed the market by an even larger margin.

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

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