There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Ionis Pharmaceuticals, Inc. (NASDAQ:IONS).
Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) was in 18 hedge funds' portfolios at the end of the second quarter of 2019. IONS investors should be aware of a decrease in hedge fund sentiment lately. There were 22 hedge funds in our database with IONS positions at the end of the previous quarter. Our calculations also showed that IONS isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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.
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 take a peek at the new hedge fund action surrounding Ionis Pharmaceuticals, Inc. (NASDAQ:IONS).
Hedge fund activity in Ionis Pharmaceuticals, Inc. (NASDAQ:IONS)
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the first quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in IONS a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) was held by Renaissance Technologies, which reported holding $112.8 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $105.1 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and AQR Capital Management.
Because Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) has faced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of funds that slashed their entire stakes last quarter. Interestingly, Peter Muller's PDT Partners dropped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at about $27.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $14.9 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) but similarly valued. We will take a look at Micro Focus Intl PLC (NYSE:MFGP), VICI Properties Inc. (NYSE:VICI), Qiagen NV (NYSE:QGEN), and MGM Growth Properties LLC (NYSE:MGP). This group of stocks' market caps match IONS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MFGP,6,44588,2 VICI,59,2841028,22 QGEN,25,303029,2 MGP,14,291026,-3 Average,26,869918,5.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $870 million. That figure was $375 million in IONS's case. VICI Properties Inc. (NYSE:VICI) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 6 bullish hedge fund positions. Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 IONS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IONS investors were disappointed as the stock returned -6.8% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.