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Did Hedge Funds Drop The Ball On Aclaris Therapeutics, Inc. (ACRS) ?

Is Aclaris Therapeutics, Inc. (NASDAQ:ACRS) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Aclaris Therapeutics, Inc. (NASDAQ:ACRS) was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. ACRS shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 14 hedge funds in our database with ACRS holdings at the end of the previous quarter. Our calculations also showed that ACRS 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action encompassing Aclaris Therapeutics, Inc. (NASDAQ:ACRS).

How are hedge funds trading Aclaris Therapeutics, Inc. (NASDAQ:ACRS)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in ACRS 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 Aclaris Therapeutics, Inc. (NASDAQ:ACRS) was held by GLG Partners, which reported holding $4 million worth of stock at the end of September. It was followed by Rock Springs Capital Management with a $3.2 million position. Other investors bullish on the company included Renaissance Technologies, Endurant Capital Management, and Vivo Capital. In terms of the portfolio weights assigned to each position Endurant Capital Management allocated the biggest weight to Aclaris Therapeutics, Inc. (NASDAQ:ACRS), around 0.57% of its 13F portfolio. Broadfin Capital is also relatively very bullish on the stock, dishing out 0.32 percent of its 13F equity portfolio to ACRS.

As one would reasonably expect, key money managers have been driving this bullishness. Broadfin Capital, managed by Kevin Kotler, initiated the most valuable position in Aclaris Therapeutics, Inc. (NASDAQ:ACRS). Broadfin Capital had $1.8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.2 million position during the quarter. The following funds were also among the new ACRS investors: John Overdeck and David Siegel’s Two Sigma Advisors and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks similar to Aclaris Therapeutics, Inc. (NASDAQ:ACRS). We will take a look at BBQ Holdings, Inc. (NASDAQ:BBQ), ICC Holdings, Inc. (NASDAQ:ICCH), Pintec Technology Holdings Limited (NASDAQ:PT), and Rekor Systems, Inc. (NASDAQ:REKR). This group of stocks’ market caps match ACRS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBQ 4 18207 4
ICCH 3 1303 0
PT 1 17 0
REKR 1 46 0
Average 2.25 4893 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $19 million in ACRS’s case. BBQ Holdings, Inc. (NASDAQ:BBQ) is the most popular stock in this table. On the other hand Pintec Technology Holdings Limited (NASDAQ:PT) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Aclaris Therapeutics, Inc. (NASDAQ:ACRS) is more popular among hedge funds. 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 ACRS as the stock returned 51.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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