How do you choose the next stock to invest in? One way would be to spend days researching through thousands of publicly traded companies. However, an easier way is to look at stocks that smart investors are collectively bullish on. Hedge funds and other institutional investors typically invest large amounts of capital and should exercise due diligence when choosing their next choice. They don’t always make the right choices, but, on average, their stock picks have historically generated strong returns after adjusting for known risk factors. With that in mind, let’s take a look at the recent hedge fund activity surrounding Ultragenyx Pharmaceutical Inc (NASDAQ:RARE).
Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) was in 32 hedge fund portfolios at the end of the second quarter of 2021. The all-time high for this statistic was previously 26. This means that the bullish number of hedge fund positions in this stock is currently at its highest level. RARE investors should be aware of an increase in the activity of the world’s largest hedge funds in recent times. There were 25 hedge funds in our database with RARE holdings at the end of March. Our calculations also showed that RARE is not one of the 30 most popular stocks among hedge funds (click for Q2 ranking).
According to most traders, hedge funds are seen as slow and old investment tools of the past. While there are over 8,000 funds with their doors open today, we are looking at this club’s elite, around 850 funds. These investment experts oversee the bulk of the total asset base of all hedge funds, and by monitoring their matchless choices, Insider Monkey has determined many investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy has outperformed S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Additionally, our monthly newsletter’s portfolio of long stock picks has returned 185.4% since March 2017 (through August 2021) and has beaten the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Michael Gelband of ExodusPoint Capital
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Do hedge funds think RARE is a good stock to buy now?
Heading into the third quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey were long on this stock, a 28% change from the previous quarter. By comparison, 24 hedge funds held bullish stocks or call options in RARE a year ago. With the change in capital of hedge funds, there are a few notable hedge fund managers who were increasing their stakes significantly (or already accumulating large positions).
Based on publicly available data on hedge funds and institutional investor holdings compiled by Insider Monkey, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the largest position in Ultragenyx Pharmaceutical Inc (NASDAQ: RARE). Alkeon Capital Management holds a position of $ 182.5 million in the stock, comprising 0.3% of its 13F portfolio. The second most optimistic fund manager is Ken Griffin of Citadel Investment Group, with a position of $ 177 million; the fund has less than 0.1 %% of its 13F portfolio invested in the stock. Some other smart money members who hold long positions include DE Shaw of DE Shaw, Point72 Asset Management of Steve Cohen and Millennium Management of Israel Englander. In terms of portfolio weights assigned to each position Motley Fool Asset Management assigned the greatest weight to Ultragenyx Pharmaceutical Inc (NASDAQ: RARE), approximately 1.08% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, setting aside 0.88% of its 13F stock portfolio at RARE.
Now the major hedge funds themselves were breaking new ground. Millennium Management, managed by Israel Englander, created the largest position in Ultragenyx Pharmaceutical Inc (NASDAQ: RARE). Millennium Management had $ 53.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $ 3.4 million position during the quarter. Other funds with new positions in the stock are ExodusPoint Capital by Michael Gelband, Greg Eisner Gate Manager Engineers, and Jinghua Yan’s TwinBeech Capital.
Let’s take a look at the activity of hedge funds in other stocks similar to Ultragenyx Pharmaceutical Inc (NASDAQ: RARE). These shares are WillScot Mobile Mini Holdings Corp. (NASDAQ:CSM), Affiliated Managers Group, Inc. (NYSE:AMG), DCP Midstream LP (NYSE:DCP), Foot Locker, Inc. (NYSE:Florida), 360 DigiTech, Inc. (NASDAQ:QEND), Reynolds Consumer Products Inc. (NASDAQ:REYN) and MultiPlan Corporation (NYSE:MPLN). All market capitalizations of these stocks are similar to the market capitalization of RARE.
[table] Ticker, number of HF with positions, total value of HF positions (x1000), change of position HF WSC, 52.1399877.5 AMG, 30.784733.4 DCP, 3.31363, -1 FL, 31.416162.3 QFIN, 14 82360, -5 REYN, 14 108385, -5 MPLN, 16 480813, -14 Medium, 22.9 471956, -1.9 [/table]
See the table here if you have formatting problems.
As you can see, these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $ 472 million. That figure was $ 770 million in the case of RARE. WillScot Mobile Mini Holdings Corp. (NASDAQ:CSM) is the most popular action in this table. On the other hand, DCP Midstream LP (NYSE:DCP) is the least popular with only 3 bullish hedge fund positions. Ultragenyx Pharmaceutical Inc (NASDAQ: RARE) isn’t the most popular stock in this group, but hedge fund interest is still above average. Our overall hedge fund sentiment score for RARE is 69.6. Stocks with a higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal, but we prefer to spend our time researching the stocks on which hedge funds are accumulating. Our calculations have shown that top 5 most popular stocks among hedge funds, returned 95.8% in 2019 and 2020 and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15 and again beat the market by 4.5 percentage points. Unfortunately, RARE was not as popular as these 5 stocks and the hedge funds that bet on RARE were disappointed as the stock has returned -16.1% since the end of June (through 10/15) and has under- performed the market. If you want to invest in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds, as many of these stocks have already outperformed the market since 2019.
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Disclosure: none. This article originally appeared on Monkey initiate.