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Hedge Fund Sentiment Is Stagnant On Minerva Neurosciences, Inc (NERV)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Minerva Neurosciences, Inc (NASDAQ:NERV) based on that data.

Hedge fund interest in Minerva Neurosciences, Inc (NASDAQ:NERV) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Houghton Mifflin Harcourt Co (NASDAQ:HMHC), PAR Technology Corporation (NYSE:PAR), and RGC Resources, Inc. (NASDAQ:RGCO) to gather more data points. Our calculations also showed that NERV 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 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 S&P 500 ETFs by 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 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.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the new hedge fund action surrounding Minerva Neurosciences, Inc (NASDAQ:NERV).

How have hedgies been trading Minerva Neurosciences, Inc (NASDAQ:NERV)?

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in NERV a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Minerva Neurosciences, Inc (NASDAQ:NERV), which was worth $4.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $4.2 million worth of shares. Baker Bros. Advisors, Cormorant Asset Management, and Opaleye 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 Opaleye Management allocated the biggest weight to Minerva Neurosciences, Inc (NASDAQ:NERV), around 0.72% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 0.71 percent of its 13F equity portfolio to NERV.

Since Minerva Neurosciences, Inc (NASDAQ:NERV) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their full holdings by the end of the first quarter. Interestingly, Steve Cohen’s Point72 Asset Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at close to $1.6 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Minerva Neurosciences, Inc (NASDAQ:NERV). We will take a look at Houghton Mifflin Harcourt Co (NASDAQ:HMHC), PAR Technology Corporation (NYSE:PAR), RGC Resources, Inc. (NASDAQ:RGCO), and Golar LNG Partners LP (NASDAQ:GMLP). This group of stocks’ market valuations are closest to NERV’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMHC 20 67758 -2
PAR 8 65546 -4
RGCO 1 1820 0
GMLP 7 22587 0
Average 9 39428 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $29 million in NERV’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand RGC Resources, Inc. (NASDAQ:RGCO) is the least popular one with only 1 bullish hedge fund positions. Minerva Neurosciences, Inc (NASDAQ:NERV) 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately NERV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NERV were disappointed as the stock returned -40.7% 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.