Why Are An Indian Automaker and Two Biotech Stocks Leading Today’s Gainers?

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk-adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 37 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).

Keryx Biopharmaceuticals (NASDAQ:KERX)’ shares bounced today after the company announced an agreement to raise $125 million from Seth Klarman‘s Baupost Group in exchange for Convertible Senior Notes due 2020. In addition, the company has agreed to extend its board of directors by one seat and allow Baupost to appoint both a director and an observer by the end of 2015. The company has also announced a cost-cutting program,which will aim to reduce expenses by as much as $92 million in 2016. During the first hour of trading, shares of Keryx jumped by as much as 13.5% and after a minor pull back, are trading up by 7.75% in afternoon trading.

The elite funds tracked by Insider Monkey have control over roughly one-third of Keryx Biopharmaceuticals (NASDAQ:KERX)’s outstanding stock, yet their interest seems to be fading. During the second quarter, the number of funds invested in the company fell to 18 from 23, while their combined holdings were valued at $325 million, down by 29%. Although the stock has been in a downtrend, Seth Klarman kept buying shares of Keryx, boosting his stake by 16% during the second quarter. According to its latest 13F filing, Baupost Group holds nearly 25.8 million shares. Israel Englander is also betting big on the stock, having tripled his stake during the quarter. His fund, Millennium Management, holds 641,448 shares of Keryx.

Investors have greeted news related to Transition Therapeutics Inc (USA) (NASDAQ:TTHI)’s results with ELND005, the company’s experimental drug designed to reduce agitation and aggression in Alzheimer’s patients, with enthusiasm. Although the company announced in June that the drug had no effect among a large sample of Alzheimer’s patients, it has identified a sub-group that reacted positively to the drug. Transition Therapeutics intends to use these results as a basis for late-stage trial discussions with the U.S. Food and Drug Administration. The stock is currently trading at $2.17, 12.44% higher than yesterday’s closing price.

Elite funds are avoiding Transition Therapeutics Inc (USA) (NASDAQ:TTHI) for the most part, and those few that were invested in the company reduced their exposure throughout the second quarter. Only six funds in our database reported ownership of the stock as of the end of June, down from seven as of the end of the first quarter, while the value of their combined stakes plummeted by 83% to just $1.88 million. Hedge funds’ holdings account for an insignificant 2.3% of Transition Therapeutics’ common stock. Hal Mintz, the manager of Sabby Capital, is bullish on this stock, increasing his stake by 13% during the second quarter to 302,837 shares. Jim Simons‘ mathematical models seem to point in the opposite direction, however, as Renaissance Technologies reduced its holding by 6% to 179,300 shares.

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