Were Hedge Funds Right Selling Marinus Pharmaceuticals Inc (MRNS)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Marinus Pharmaceuticals Inc (NASDAQ:MRNS) was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. MRNS shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 12 hedge funds in our database with MRNS holdings at the end of the previous quarter. Our calculations also showed that MRNS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a gander at the key hedge fund action encompassing Marinus Pharmaceuticals Inc (NASDAQ:MRNS).

What have hedge funds been doing with Marinus Pharmaceuticals Inc (NASDAQ:MRNS)?

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -42% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRNS over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Granite Point Capital was the largest shareholder of Marinus Pharmaceuticals Inc (NASDAQ:MRNS), with a stake worth $5.5 million reported as of the end of September. Trailing Granite Point Capital was Lion Point, which amassed a stake valued at $5.3 million. Alyeska Investment Group, 683 Capital Partners, and Palo Alto Investors 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 Granite Point Capital allocated the biggest weight to Marinus Pharmaceuticals Inc (NASDAQ:MRNS), around 0.85% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, setting aside 0.59 percent of its 13F equity portfolio to MRNS.

Due to the fact that Marinus Pharmaceuticals Inc (NASDAQ:MRNS) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers who were dropping their entire stakes by the end of the third quarter. Interestingly, Samuel Isaly’s OrbiMed Advisors said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $1.7 million in stock, and Vishal Saluja and Pham Quang’s Endurant Capital Management was right behind this move, as the fund dumped about $1.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Marinus Pharmaceuticals Inc (NASDAQ:MRNS). These stocks are Trevi Therapeutics, Inc. (NASDAQ:TRVI), Aquestive Therapeutics, Inc. (NASDAQ:AQST), Hunt Companies Finance Trust, Inc. (NYSE:HCFT), and A. H. Belo Corporation (NYSE:AHC). This group of stocks’ market caps match MRNS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRVI 2 835 -1
AQST 3 7355 -1
HCFT 3 4995 -2
AHC 4 7685 1
Average 3 5218 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $15 million in MRNS’s case. A. H. Belo Corporation (NYSE:AHC) is the most popular stock in this table. On the other hand Trevi Therapeutics, Inc. (NASDAQ:TRVI) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Marinus Pharmaceuticals Inc (NASDAQ:MRNS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MRNS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MRNS were disappointed as the stock returned -14.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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