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Did Hedge Funds Drop The Ball On Axsome Therapeutics, Inc. (AXSM)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Axsome Therapeutics, Inc. (NASDAQ:AXSM) based on those filings.

Is Axsome Therapeutics, Inc. (NASDAQ:AXSM) an outstanding investment now? Prominent investors are turning less bullish. The number of bullish hedge fund bets went down by 1 lately. Our calculations also showed that AXSM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AXSM was in 15 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with AXSM holdings at the end of the previous quarter.
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.

Michael Castor Sio Capital

Michael Castor of Sio Capital

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. Let’s go over the key hedge fund action regarding Axsome Therapeutics, Inc. (NASDAQ:AXSM).

How are hedge funds trading Axsome Therapeutics, Inc. (NASDAQ:AXSM)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AXSM over the last 17 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Axsome Therapeutics, Inc. (NASDAQ:AXSM) was held by Baker Bros. Advisors, which reported holding $15.6 million worth of stock at the end of September. It was followed by Ghost Tree Capital with a $13.7 million position. Other investors bullish on the company included RA Capital Management, Farallon Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Ghost Tree Capital allocated the biggest weight to Axsome Therapeutics, Inc. (NASDAQ:AXSM), around 3.47% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to AXSM.

Since Axsome Therapeutics, Inc. (NASDAQ:AXSM) has faced a decline in interest from the smart money, it’s safe to say that there exists a select few money managers that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Renaissance Technologies cut the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $6.4 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $0.6 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Axsome Therapeutics, Inc. (NASDAQ:AXSM) but similarly valued. We will take a look at NextDecade Corporation (NASDAQ:NEXT), Capstead Mortgage Corporation (NYSE:CMO), Bluegreen Vacations Corporation (NYSE:BXG), and Quotient Technology Inc (NYSE:QUOT). This group of stocks’ market valuations are similar to AXSM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEXT 7 510135 -2
CMO 9 32875 0
BXG 7 21356 1
QUOT 17 232074 4
Average 10 199110 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $76 million in AXSM’s case. Quotient Technology Inc (NYSE:QUOT) is the most popular stock in this table. On the other hand NextDecade Corporation (NASDAQ:NEXT) is the least popular one with only 7 bullish hedge fund positions. Axsome Therapeutics, Inc. (NASDAQ:AXSM) 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 AXSM as the stock returned 94.5% 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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