Is Sarepta Therapeutics Inc (NASDAQ:SRPT) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Sarepta Therapeutics Inc (NASDAQ:SRPT) investors should be aware of an increase in hedge fund interest of late. Our calculations also showed that SRPT isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's review the recent hedge fund action regarding Sarepta Therapeutics Inc (NASDAQ:SRPT).
How have hedgies been trading Sarepta Therapeutics Inc (NASDAQ:SRPT)?
Heading into the third quarter of 2019, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the first quarter of 2019. On the other hand, there were a total of 47 hedge funds with a bullish position in SRPT a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, venBio Select Advisor held the most valuable stake in Sarepta Therapeutics Inc (NASDAQ:SRPT), which was worth $212.7 million at the end of the second quarter. On the second spot was Adage Capital Management which amassed $182.3 million worth of shares. Moreover, OrbiMed Advisors, Cadian Capital, and Partner Fund Management were also bullish on Sarepta Therapeutics Inc (NASDAQ:SRPT), allocating a large percentage of their portfolios to this stock.
Now, key hedge funds have jumped into Sarepta Therapeutics Inc (NASDAQ:SRPT) headfirst. Partner Fund Management, managed by Christopher James, created the largest position in Sarepta Therapeutics Inc (NASDAQ:SRPT). Partner Fund Management had $83.1 million invested in the company at the end of the quarter. Jeremy Green's Redmile Group also initiated a $62.6 million position during the quarter. The other funds with new positions in the stock are Ken Greenberg and David Kim's Ghost Tree Capital, Thomas E. Claugus's GMT Capital, and Renaissance Technologies.
Let's go over hedge fund activity in other stocks similar to Sarepta Therapeutics Inc (NASDAQ:SRPT). These stocks are Lennox International Inc. (NYSE:LII), E*TRADE Financial Corporation (NASDAQ:ETFC), Seattle Genetics, Inc. (NASDAQ:SGEN), and Equity Lifestyle Properties, Inc. (NYSE:ELS). This group of stocks' market caps are closest to SRPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LII,21,120353,2 ETFC,43,1180517,0 SGEN,17,3788958,-2 ELS,18,553591,3 Average,24.75,1410855,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $1411 million. That figure was $1467 million in SRPT's case. E*TRADE Financial Corporation (NASDAQ:ETFC) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Sarepta Therapeutics Inc (NASDAQ:SRPT) is more popular among hedge funds. 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. Unfortunately SRPT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SRPT were disappointed as the stock returned -50.4% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.