Did Hedge Funds Make The Right Call On Mirati Therapeutics, Inc. (MRTX) ?
Asma UL Husna
6 min read
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mirati Therapeutics, Inc. (NASDAQ:MRTX) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Mirati Therapeutics, Inc. (NASDAQ:MRTX) has experienced an increase in activity from the world's largest hedge funds of late. Our calculations also showed that MRTX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the recent hedge fund action regarding Mirati Therapeutics, Inc. (NASDAQ:MRTX).
How are hedge funds trading Mirati Therapeutics, Inc. (NASDAQ:MRTX)?
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MRTX over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Avoro Capital Advisors (venBio Select Advisor) was the largest shareholder of Mirati Therapeutics, Inc. (NASDAQ:MRTX), with a stake worth $316.1 million reported as of the end of September. Trailing Avoro Capital Advisors (venBio Select Advisor) was Perceptive Advisors, which amassed a stake valued at $255.2 million. OrbiMed Advisors, Baker Bros. Advisors, and Cormorant Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Mirati Therapeutics, Inc. (NASDAQ:MRTX), around 10.67% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, dishing out 6.65 percent of its 13F equity portfolio to MRTX.
As one would reasonably expect, some big names were breaking ground themselves. Rhenman & Partners Asset Management, managed by Henrik Rhenman, created the most outsized position in Mirati Therapeutics, Inc. (NASDAQ:MRTX). Rhenman & Partners Asset Management had $10 million invested in the company at the end of the quarter. Charles Clough's Clough Capital Partners also made a $8.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Rockefeller and KarláKroeker's Woodline Partners, Jerome Pfund and Michael Sjostrom's Sectoral Asset Management, and Nathan Fischel's DAFNA Capital Management.
Let's check out hedge fund activity in other stocks similar to Mirati Therapeutics, Inc. (NASDAQ:MRTX). These stocks are Cabot Microelectronics Corporation (NASDAQ:CCMP), The Wendy's Company (NASDAQ:WEN), DXC Technology Company (NYSE:DXC), and Vedanta Ltd (NYSE:VEDL). This group of stocks' market values are closest to MRTX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCMP,16,232320,-8 WEN,35,706422,7 DXC,41,382695,-6 VEDL,11,26697,-2 Average,25.75,337034,-2.25 [/table]
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $337 million. That figure was $1123 million in MRTX's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 11 bullish hedge fund positions. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on MRTX as the stock returned 48.5% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
