Did Hedge Funds Make The Right Call On Aerie Pharmaceuticals Inc (AERI) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Aerie Pharmaceuticals Inc (NASDAQ:AERI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Aerie Pharmaceuticals Inc (NASDAQ:AERI) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. AERI was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with AERI positions at the end of the previous quarter. Our calculations also showed that AERI 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.

According to most market participants, hedge funds are seen as worthless, old investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the moguls of this group, approximately 850 funds. These money managers orchestrate the majority of the smart money’s total asset base, and by following their inimitable picks, Insider Monkey has discovered numerous investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. 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 if you have any good ideas send us an email. With all of this in mind let’s take a look at the key hedge fund action encompassing Aerie Pharmaceuticals Inc (NASDAQ:AERI).

What have hedge funds been doing with Aerie Pharmaceuticals Inc (NASDAQ:AERI)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AERI over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AERI A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, James E. Flynn’s Deerfield Management has the largest position in Aerie Pharmaceuticals Inc (NASDAQ:AERI), worth close to $34.2 million, amounting to 1.1% of its total 13F portfolio. The second most bullish fund manager is Partner Fund Management, led by Christopher James, holding a $34.1 million position; 2.8% of its 13F portfolio is allocated to the stock. Other peers that are bullish contain John A. Levin’s Levin Capital Strategies, Mark Kingdon’s Kingdon Capital and Henrik Rhenman’s Rhenman & Partners Asset Management. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Aerie Pharmaceuticals Inc (NASDAQ:AERI), around 7.66% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, designating 3.27 percent of its 13F equity portfolio to AERI.

As aggregate interest increased, key money managers have jumped into Aerie Pharmaceuticals Inc (NASDAQ:AERI) headfirst. Rhenman & Partners Asset Management, managed by Henrik Rhenman, assembled the most outsized position in Aerie Pharmaceuticals Inc (NASDAQ:AERI). Rhenman & Partners Asset Management had $9.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $5.5 million investment in the stock during the quarter. The other funds with brand new AERI positions are Dmitry Balyasny’s Balyasny Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Minhua Zhang’s Weld Capital Management.

Let’s go over hedge fund activity in other stocks similar to Aerie Pharmaceuticals Inc (NASDAQ:AERI). These stocks are AAR Corp. (NYSE:AIR), Bloomin’ Brands Inc (NASDAQ:BLMN), Qutoutiao Inc. (NASDAQ:QTT), and PDC Energy Inc (NASDAQ:PDCE). All of these stocks’ market caps are closest to AERI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AIR 18 42644 -5
BLMN 24 88391 6
QTT 9 5239 4
PDCE 25 114905 -7
Average 19 62795 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $158 million in AERI’s case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand Qutoutiao Inc. (NASDAQ:QTT) is the least popular one with only 9 bullish hedge fund positions. Aerie Pharmaceuticals Inc (NASDAQ:AERI) 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 AERI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AERI were disappointed as the stock returned 9.3% 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.