Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) ready to rally soon? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions went up by 2 recently. Our calculations also showed that ACRX isn’t among the 30 most popular stocks among hedge funds. ACRX was in 5 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with ACRX holdings at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to review the recent hedge fund action regarding AcelRx Pharmaceuticals Inc (NASDAQ:ACRX).
Hedge fund activity in AcelRx Pharmaceuticals Inc (NASDAQ:ACRX)
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ACRX over the last 13 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.
The largest stake in AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) was held by Renaissance Technologies, which reported holding $1.7 million worth of stock at the end of September. It was followed by D E Shaw with a $0.7 million position. Other investors bullish on the company included Citadel Investment Group, Sectoral Asset Management, and Citadel Investment Group.
With a general bullishness amongst the heavyweights, key money managers have jumped into AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) headfirst. Sectoral Asset Management, managed by Jerome Pfund and Michael Sjostrom, established the most outsized position in AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). Sectoral Asset Management had $0.3 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $0.1 million investment in the stock during the quarter.
Let’s go over hedge fund activity in other stocks similar to AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). These stocks are PCM, Inc. (NASDAQ:PCMI), Dreyfus High Yield Strategies Fund (NYSE:DHF), Foamix Pharmaceuticals Ltd (NASDAQ:FOMX), and Neuberger Berman Real Estate Securities Income Fund, Inc. (NYSE:NRO). All of these stocks’ market caps are closest to ACRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCMI | 12 | 19345 | 2 |
| DHF | 2 | 897 | -1 |
| FOMX | 19 | 119632 | 4 |
| NRO | 3 | 525 | 2 |
| Average | 9 | 35100 | 1.75 |
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 $35 million. That figure was $3 million in ACRX’s case. Foamix Pharmaceuticals Ltd (NASDAQ:FOMX) is the most popular stock in this table. On the other hand Dreyfus High Yield Strategies Fund (NYSE:DHF) is the least popular one with only 2 bullish hedge fund positions. AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FOMX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
