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2019 Review: Top Hedge Fund Stocks vs. Acceleron Pharma Inc (XLRN)

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Acceleron Pharma Inc (NASDAQ:XLRN) and compare its performance against hedge funds’ favorite stocks.

Acceleron Pharma Inc (NASDAQ:XLRN) has seen an increase in hedge fund sentiment lately. XLRN was in 23 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with XLRN positions at the end of the previous quarter. Our calculations also showed that XLRN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Flynn Deerfield Management

James E. Flynn of Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a gander at the new hedge fund action encompassing Acceleron Pharma Inc (NASDAQ:XLRN).

Hedge fund activity in Acceleron Pharma Inc (NASDAQ:XLRN)

At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards XLRN over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Farallon Capital held the most valuable stake in Acceleron Pharma Inc (NASDAQ:XLRN), which was worth $94.8 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $57.5 million worth of shares. Deerfield Management, Alkeon Capital Management, and Citadel Investment Group 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 Great Point Partners allocated the biggest weight to Acceleron Pharma Inc (NASDAQ:XLRN), around 5.28% of its 13F portfolio. Foresite Capital is also relatively very bullish on the stock, dishing out 3.85 percent of its 13F equity portfolio to XLRN.

As one would reasonably expect, key hedge funds have jumped into Acceleron Pharma Inc (NASDAQ:XLRN) headfirst. Hudson Bay Capital Management, managed by Sander Gerber, initiated the biggest call position in Acceleron Pharma Inc (NASDAQ:XLRN). Hudson Bay Capital Management had $1.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.5 million investment in the stock during the quarter. The only other fund with a brand new XLRN position is Noam Gottesman’s GLG Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Acceleron Pharma Inc (NASDAQ:XLRN) but similarly valued. These stocks are Retail Opportunity Investments Corp (NASDAQ:ROIC), Dana Incorporated (NYSE:DAN), Ambarella Inc (NASDAQ:AMBA), and ESCO Technologies Inc. (NYSE:ESE). This group of stocks’ market values resemble XLRN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROIC 18 77228 5
DAN 25 192399 0
AMBA 28 255178 7
ESE 8 3101 4
Average 19.75 131977 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $322 million in XLRN’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 8 bullish hedge fund positions. Acceleron Pharma Inc (NASDAQ:XLRN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately XLRN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XLRN were disappointed as the stock returned 21.7% in 2019 and trailed 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 this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.

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