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Hedge Funds Are Selling Aerie Pharmaceuticals Inc (AERI)

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Aerie Pharmaceuticals Inc (NASDAQ:AERI).

Is Aerie Pharmaceuticals Inc (NASDAQ:AERI) a marvelous investment today? Money managers are getting less optimistic. The number of long hedge fund bets retreated by 1 recently. Our calculations also showed that AERI isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

We’re going to review the key hedge fund action surrounding Aerie Pharmaceuticals Inc (NASDAQ:AERI).

How have hedgies been trading Aerie Pharmaceuticals Inc (NASDAQ:AERI)?

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2018. By comparison, 23 hedge funds held shares or bullish call options in AERI heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

AERI_dec2018

More specifically, Adage Capital Management was the largest shareholder of Aerie Pharmaceuticals Inc (NASDAQ:AERI), with a stake worth $163.1 million reported as of the end of September. Trailing Adage Capital Management was Partner Fund Management, which amassed a stake valued at $139 million. Foresite Capital, Deerfield Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Aerie Pharmaceuticals Inc (NASDAQ:AERI) has faced bearish sentiment from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their positions entirely in the third quarter. Intriguingly, Zach Schreiber’s Point State Capital dropped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $19 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dropped about $5.7 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Aerie Pharmaceuticals Inc (NASDAQ:AERI) but similarly valued. We will take a look at Delphi Technologies PLC (NYSE:DLPH), FTI Consulting, Inc. (NYSE:FCN), InterDigital, Inc. (NASDAQ:IDCC), and Mercury General Corporation (NYSE:MCY). This group of stocks’ market caps resemble AERI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DLPH 22 295869 -1
FCN 18 108657 4
IDCC 18 174990 3
MCY 18 140557 9
Average 19 180018 3.75

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 $180 million. That figure was $925 million in AERI’s case. 0 is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Aerie Pharmaceuticals Inc (NASDAQ:AERI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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