Did Hedge Funds Drop The Ball On Achillion Pharmaceuticals, Inc. (ACHN) ?

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) and see how the stock is affected by the recent hedge fund activity.

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that ACHN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? 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.


Israel Englander of Millennium Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the new hedge fund action surrounding Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN).

How have hedgies been trading Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in ACHN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) was held by MAK Capital One, which reported holding $24.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $13.9 million position. Other investors bullish on the company included Rock Springs Capital Management, Millennium Management, and Baker Bros. Advisors. In terms of the portfolio weights assigned to each position MAK Capital One allocated the biggest weight to Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), around 9.97% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, designating 0.71 percent of its 13F equity portfolio to ACHN.

Now, key money managers have jumped into Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) headfirst. Pura Vida Investments, managed by Efrem Kamen, assembled the most valuable position in Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). Pura Vida Investments had $2 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also made a $0.1 million investment in the stock during the quarter. The other funds with brand new ACHN positions are John Zaro’s Bourgeon Capital and Andre F. Perold’s HighVista Strategies.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) but similarly valued. These stocks are TransMedics Group, Inc. (NASDAQ:TMDX), Loop Industries, Inc. (NASDAQ:LOOP), California Resources Corporation (NYSE:CRC), and GameStop Corp. (NYSE:GME). This group of stocks’ market caps resemble ACHN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TMDX 4 94901 -3
LOOP 2 408 1
CRC 20 105193 8
GME 20 44116 -7
Average 11.5 61155 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $83 million in ACHN’s case. California Resources Corporation (NYSE:CRC) is the most popular stock in this table. On the other hand Loop Industries, Inc. (NASDAQ:LOOP) is the least popular one with only 2 bullish hedge fund positions. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ACHN as the stock returned 72.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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