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Did Hedge Funds Make The Right Call On Acceleron Pharma Inc (XLRN) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Acceleron Pharma Inc (NASDAQ:XLRN) and determine whether the smart money was really smart about this stock.

Acceleron Pharma Inc (NASDAQ:XLRN) was in 38 hedge funds’ portfolios at the end of the first quarter of 2020. XLRN shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 27 hedge funds in our database with XLRN holdings 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 Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Acceleron Pharma Inc (NASDAQ:XLRN).

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

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XLRN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XLRN A Good Stock To Buy?

Among these funds, Farallon Capital held the most valuable stake in Acceleron Pharma Inc (NASDAQ:XLRN), which was worth $195.5 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $123.8 million worth of shares. Avoro Capital Advisors (venBio Select Advisor), Cormorant Asset Management, and Great Point Partners 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 Foresite Capital allocated the biggest weight to Acceleron Pharma Inc (NASDAQ:XLRN), around 6.01% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, designating 5.03 percent of its 13F equity portfolio to XLRN.

As one would reasonably expect, key money managers were breaking ground themselves. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, initiated the largest position in Acceleron Pharma Inc (NASDAQ:XLRN). Avoro Capital Advisors (venBio Select Advisor) had $77.3 million invested in the company at the end of the quarter. Bihua Chen’s Cormorant Asset Management also initiated a $74.1 million position during the quarter. The other funds with brand new XLRN positions are Brandon Haley’s Holocene Advisors, Neil Shahrestani’s Ikarian Capital, and D. E. Shaw’s D E Shaw.

Let’s also examine hedge fund activity in other stocks similar to Acceleron Pharma Inc (NASDAQ:XLRN). These stocks are Reata Pharmaceuticals, Inc. (NASDAQ:RETA), People’s United Financial, Inc. (NASDAQ:PBCT), Steel Dynamics, Inc. (NASDAQ:STLD), and First American Financial Corp (NYSE:FAF). This group of stocks’ market caps are similar to XLRN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RETA 33 398437 4
PBCT 22 43269 0
STLD 27 330665 -8
FAF 40 525520 -2
Average 30.5 324473 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $775 million in XLRN’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand People’s United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 22 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately XLRN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XLRN were disappointed as the stock returned 6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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