During the fourth quarter, the smart money investment firms tracked by Insider Monkey were quick to withdraw their collective support from some well-known companies across various sectors, just before their stock prices plummeted in the January-to-February period. This insight into hedge fund managers’ successful moves drives home the importance that should be placed upon tracking them, something which Insider Monkey has been at the forefront of for years. Of course, even their collective wisdom is not always right, and we are the first to admit that as well and present both their successes and failures. But we know through our research that the collective stock picks of a select group of top investors like those that we track can outperform the market over the long-term. With that in mind, in this article we’ll examine five potholes that hedgies managed to avoid this year by getting out of stocks in the final quarter of last year.
The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).
#5 Anacor Pharmaceuticals Inc (NASDAQ:ANAC)
– Investors with Long Positions (as of December 31): 24
– Aggregate Value of Investors’ Holdings (as of December 31): $1.08 Billion
The stock price of the $2.77 billion biopharmaceutical company slumped by 43.5% during the first two months of this year. It was fortuitous then that the number of hedge funds in our system holding the company in their portfolios dropped by 33% during the fourth quarter, while the subsequent value of their aggregate holdings slid by 28%. In its recently released financial results for the fourth quarter, Anacor Pharmaceuticals Inc (NASDAQ:ANAC) delivered a net loss of $0.43 per share, which was $0.13 below expectations, while revenue of $21.2 million also missed the mark widely, by $6.73 million. William Leland Edwards‘ Palo Alto Investors reduced its stake in Anacor Pharmaceuticals Inc (NASDAQ:ANAC) by nearly 5% during the final three months of 2015, to 2.19 million shares.
#4 Platform Specialty Products Corp (NYSE:PAH)
– Investors with Long Positions (as of December 31): 20
– Aggregate Value of Investors’ Holdings (as of December 31): $971.64 Million
During the fourth trimester, the number of hedge funds owning Platform Specialty Products Corp (NYSE:PAH)’s stock dropped by half, even though the concentration of their aggregate investments still amassed 35.9% of the company’s float. Those who bailed on the global specialty chemicals business avoided a 44.7% decline in the company’s stock price in the first two months of this year. The company announced the appointment of its new CEO in December of last year, which has only added to the uncertainty surrounding a relatively newly-listed company which lacks an airtight long-term strategy. A total of three acquisitions were made by Platform last year, with two of them closing in the final quarter of 2015. Hence, the company is using the SEC’s 15-day grace period to delay filing its annual financial report. Murray Stahl reduced his fund Horizon Asset Management’s stake in Platform Specialty Products Corp (NYSE:PAH) by 26% to 4.07 million shares during the fourth quarter.