Hedge Fund Sentiment Says You Should Be Wary of One of these Three Tuesday Gainers

The Phoenix Companies, Inc. (NYSE:PNX), Ceres Inc (NASDAQ:CERE) and Rockwell Medical Inc (NASDAQ:RMTI) have all registered sharp climbs today for a myriad of reasons. However, hedge funds do not like all of these Tuesday high-fliers as we will see in the discussion below.

Wall Street Bull

Wall Street Bull

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge funds have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P500 Index by more than 60 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.

The Phoenix Companies, Inc. (NYSE:PNX)’s shares have flown over 150% higher on Tuesday morning after the firm revealed that it has entered into a definitive acquisition agreement with Nassau Reinsurance Group Holdings L.P. Nassau Reinsurance will pay $37.50 per Phoneix share, valuing the company at $217.2 million. This is a 188% premium over Phoenix’s closing price on Monday. Nassau will also be injecting $100 million in equity capital in Phoenix once it becomes a wholly-owned subsidiary to stabilize and improve Phoenix’s balance sheet. The deal is expected to close in 2016, and Phoenix will become Nassau’s life and annuity platform in the U.S.

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There was a slight influx of capital into The Phoenix Companies, Inc. (NYSE:PNX) stock in the second quarter from hedge funds, as despite the 63.51% decrease of the stock, the total value of hedge funds’ holdings in the firm declined by only 55.32% to $10.21 million. It should be said, nonetheless, that there was one fewer hedge fund long in the stock by the end of June, compared to the end of March. Hedge funds owned 9.60% of the Phoenix at the end of the second quarter. Martin Hughes’ Toscafund Asset Management owned 438,799 shares of Phoenix at the end of June.