Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) to find out whether it was one of their high conviction long-term ideas.
Is Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) an exceptional investment today? The best stock pickers are in a bearish mood. The number of long hedge fund positions were cut by 1 lately. Our calculations also showed that RYTM isn't among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are viewed as slow, old financial vehicles of the past. While there are over 8000 funds trading at present, Our researchers hone in on the upper echelon of this group, around 750 funds. Most estimates calculate that this group of people shepherd the majority of the hedge fund industry's total asset base, and by paying attention to their unrivaled stock picks, Insider Monkey has come up with various investment strategies that have historically outpaced the S&P 500 index. Insider Monkey's flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Peter Kolchinsky
Unlike former hedge manager, Dr. Steve Sjuggerud, 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 go over the fresh hedge fund action regarding Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM).
What does smart money think about Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM)?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in RYTM a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
RYTM_oct2019
Among these funds, Baker Bros. Advisors held the most valuable stake in Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), which was worth $59.6 million at the end of the second quarter. On the second spot was RA Capital Management which amassed $41.5 million worth of shares. Moreover, OrbiMed Advisors, Deerfield Management, and Perceptive Advisors were also bullish on Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM), allocating a large percentage of their portfolios to this stock.
Seeing as Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) has witnessed bearish sentiment from the smart money, it's safe to say that there were a few funds who were dropping their entire stakes heading into Q3. Interestingly, Michael Gelband's ExodusPoint Capital dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $0.5 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dropped about $0.4 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) but similarly valued. These stocks are Horizon Bancorp, Inc. (NASDAQ:HBNC), National Energy Services Reunited Corp. (NASDAQ:NESR), The Providence Service Corporation (NASDAQ:PRSC), and Intellia Therapeutics, Inc. (NASDAQ:NTLA). This group of stocks' market valuations are similar to RYTM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HBNC,11,23484,1 NESR,7,26596,-1 PRSC,14,163226,2 NTLA,12,24081,2 Average,11,59347,1 [/table]
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $149 million in RYTM's case. The Providence Service Corporation (NASDAQ:PRSC) is the most popular stock in this table. On the other hand National Energy Services Reunited Corp. (NASDAQ:NESR) is the least popular one with only 7 bullish hedge fund positions. Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) 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 RYTM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RYTM investors were disappointed as the stock returned -1.9% 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.
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