Was Smart Money right about Vertex Pharmaceuticals (VRTX)?

Our extensive research has shown that emulating smart money can generate significant returns for retail investors, which is why we follow nearly 900 active top fund managers and analyze their 13F quarterly returns. Stocks that are heavily bought by hedge funds have historically outperformed the market, although there is no shortage of high profile defaults, such as the 2018 hedge fund losses on Facebook and Apple. Let’s take a closer look at what the funds we track think about Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) in this article.

Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) was listed in 60 hedge fund portfolios at the end of June. The all-time high for this statistic is 68. VRTX has recently seen a decline in support from the world’s most elite fund managers. There were 68 hedge funds in our database with VRTX positions at the end of the first quarter. Our calculations also showed that VRTX is not in the top 30 most popular stocks among hedge funds (click for Q2 rank).

The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 79 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Kamran Moghtaderi from Eversept Partners

At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, the demand for helium is skyrocketing and there is a shortage of helium supply, so we are checking stock locations like this emerging helium stock. We go through lists like the top 10 electric vehicle stocks to pick the next Tesla that will deliver 10x yield. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can sign up for our free daily newsletter on our homepage. With all of that in mind, we’ll review the new hedge fund action surrounding Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).

Do hedge funds think VRTX is a good stock to buy now?

At the end of June, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 54 hedge funds held bullish stocks or call options in VRTX a year ago. With the whirlwind of hedge fund sentiment, there is a “top tier” of key hedge fund managers who are significantly increasing their stakes (or already building up large positions).

Regarding institutional investors followed by Insider Monkey, Renaissance Technologies ranks first in Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX). Renaissance Technologies holds a position of $ 459.2 million in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Catherine D. Wood of ARK Investment Management, with a position of $ 357.7 million; 0.7% of its 13F portfolio is allocated to society. Other smart money members with similar optimism include OrbiMed Advisors, Noam Gottesman’s GLG Partners, and Behzad Aghazadeh’s Avoro Capital Advisors (venBio Select Advisor). In terms of the portfolio weights assigned to each position, Copernicus Capital Management assigned the largest weight to Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX), approximately 28.62% of its 13F portfolio. HealthInvest Partners AB is also relatively very bullish on the stock, setting aside 9.94% of its 13F equity portfolio at VRTX.

Because Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) saw a drop in smart money sentiment, it’s safe to say that there is a sect of funds that fully reduced their positions before the third quarter. Oddly enough, Anand Parekh’s Alyeska Investment Group dropped the largest position of the 750 funds tracked by Insider Monkey, worth nearly $ 20.6 million in shares, and Philip Hempleman’s Ardsley Partners was right behind that decision. , the fund having reduced by approximately $ 15 million. These deals are interesting because the total hedge fund interest was reduced by 8 funds at the start of the third quarter.

Now let’s take a look at the hedge fund activity in other stocks – not necessarily in the same industry as Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) but of similar value. We’ll take a look at Biogen Inc. (NASDAQ: BIIB), Carvana Co. (NYSE: CVNA), ING Groep NV (NYSE: ING), UBS Group AG (NYSE: UBS), Relx PLC (NYSE: RELX), Roblox Corporation (NYSE: RBLX) and Canadian Pacific Railway Limited (NYSE: CP). The market values ​​of this group of shares resemble the market value of VRTX.

[table] Ticker, number of HF with positions, total value of HF positions (x1000), change of HF position BIIB, 67.3116691,4 CVNA, 63.8904829, -1 ING, 9.601603, -1 UBS, 15.176356, -1 RELX, 6.58838.2 RBLX, 49.4914667.3 CP, 25.6353608, -8 Medium, 33.4.3446656, -0.3 [/table]

Check the table here if you have formatting issues.

As you can see, these stocks had an average of 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $ 3,447 million. That figure was $ 2,809 million in the case of VRTX. Biogen Inc. (NASDAQ: BIIB) is the most popular stock in this table. On the other hand, Rex PLC (NYSE: RELX) is the least popular with only 6 bullish hedge fund positions. Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) isn’t the most popular stock in this group, but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRTX is 67.7. 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 showed that the 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 26.3% in 2021 through October 29 and again beat the market by 2.3 percentage points. Unfortunately, VRTX was not as popular as these 5 stocks and the hedge funds betting on VRTX were disappointed as the stock returned -8.3% since the end of June (through 10/29) and under -performed the market. If you want to invest in large cap stocks with huge upside potential, you should check out the 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 Insider Monkey.


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