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Were Hedge Funds Right About Piling Into Regeneron Pharmaceuticals Inc (REGN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Regeneron Pharmaceuticals Inc (NASDAQ:REGN) and determine whether hedge funds had an edge regarding this stock.

Is Regeneron Pharmaceuticals Inc (NASDAQ:REGN) going to take off soon? The smart money was becoming more confident. The number of long hedge fund bets advanced by 5 in recent months. Our calculations also showed that REGN 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.

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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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. With all of this in mind let’s take a gander at the new hedge fund action surrounding Regeneron Pharmaceuticals Inc (NASDAQ:REGN).

How are hedge funds trading Regeneron Pharmaceuticals Inc (NASDAQ:REGN)?

At the end of the first quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in REGN a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Regeneron Pharmaceuticals Inc (NASDAQ:REGN), with a stake worth $238 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $185.8 million. AQR Capital Management, PEAK6 Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bridger Management allocated the biggest weight to Regeneron Pharmaceuticals Inc (NASDAQ:REGN), around 5.19% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, setting aside 1.93 percent of its 13F equity portfolio to REGN.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Bridger Management, managed by Roberto Mignone, initiated the most outsized position in Regeneron Pharmaceuticals Inc (NASDAQ:REGN). Bridger Management had $44.8 million invested in the company at the end of the quarter. Joseph Edelman’s Perceptive Advisors also made a $39.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson’s Adage Capital Management, Glen Kacher’s Light Street Capital, and Michael Rockefeller and KarláKroeker’s Woodline Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Regeneron Pharmaceuticals Inc (NASDAQ:REGN) but similarly valued. These stocks are Equinix Inc (REIT) (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), The Goldman Sachs Group, Inc. (NYSE:GS), and U.S. Bancorp (NYSE:USB). All of these stocks’ market caps are similar to REGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQIX 55 1950326 12
AMD 62 2087092 9
GS 74 3084948 -1
USB 51 5625919 1
Average 60.5 3187071 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 60.5 hedge funds with bullish positions and the average amount invested in these stocks was $3187 million. That figure was $838 million in REGN’s case. The Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand U.S. Bancorp (NYSE:USB) is the least popular one with only 51 bullish hedge fund positions. Compared to these stocks Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is even less popular than USB. Hedge funds clearly dropped the ball on REGN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on REGN as the stock returned 27.7% in the second quarter and outperformed the market by an even larger margin.

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