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Did Hedge Funds Drop The Ball On Akebia Therapeutics Inc (AKBA) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Akebia Therapeutics Inc (NASDAQ:AKBA).

Akebia Therapeutics Inc (NASDAQ:AKBA) was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. AKBA has seen an increase in enthusiasm from smart money recently. There were 14 hedge funds in our database with AKBA holdings at the end of the previous quarter. Our calculations also showed that AKBA 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.

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.

David Abrams

David Abrams of Abrams 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 check out the latest hedge fund action regarding Akebia Therapeutics Inc (NASDAQ:AKBA).

How are hedge funds trading Akebia Therapeutics Inc (NASDAQ:AKBA)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AKBA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Baupost Group held the most valuable stake in Akebia Therapeutics Inc (NASDAQ:AKBA), which was worth $95.9 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $22.7 million worth of shares. Abrams Capital Management, Point72 Asset Management, and DAFNA Capital Management 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 DAFNA Capital Management allocated the biggest weight to Akebia Therapeutics Inc (NASDAQ:AKBA), around 1.22% of its 13F portfolio. Baupost Group is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to AKBA.

Now, some big names were breaking ground themselves. Renaissance Technologies, initiated the largest position in Akebia Therapeutics Inc (NASDAQ:AKBA). Renaissance Technologies had $0.2 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.1 million position during the quarter. The only other fund with a new position in the stock is Andre F. Perold’s HighVista Strategies.

Let’s now review hedge fund activity in other stocks similar to Akebia Therapeutics Inc (NASDAQ:AKBA). These stocks are Gilat Satellite Networks Ltd. (NASDAQ:GILT), Forterra, Inc. (NASDAQ:FRTA), Matrix Service Co (NASDAQ:MTRX), and Nexgen Energy Ltd. (NYSE:NXE). This group of stocks’ market values are similar to AKBA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GILT 2 25553 0
FRTA 13 73440 2
MTRX 19 28483 5
NXE 8 20023 0
Average 10.5 36875 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $157 million in AKBA’s case. Matrix Service Co (NASDAQ:MTRX) is the most popular stock in this table. On the other hand Gilat Satellite Networks Ltd. (NASDAQ:GILT) is the least popular one with only 2 bullish hedge fund positions. Akebia Therapeutics Inc (NASDAQ:AKBA) 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 AKBA as the stock returned 60.5% 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.

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