Hedge Funds Are Souring On Acacia Communications, Inc. (ACIA)

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Acacia Communications, Inc. (NASDAQ:ACIA) and see how it was affected.

Is Acacia Communications, Inc. (NASDAQ:ACIA) a buy, sell, or hold? The smart money is getting less optimistic. The number of long hedge fund bets fell by 3 recently. Our calculations also showed that ACIA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ACIA was in 25 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with ACIA positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the latest hedge fund action surrounding Acacia Communications, Inc. (NASDAQ:ACIA).

What does smart money think about Acacia Communications, Inc. (NASDAQ:ACIA)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACIA over the last 17 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with ACIA Positions

Among these funds, Magnetar Capital held the most valuable stake in Acacia Communications, Inc. (NASDAQ:ACIA), which was worth $127.2 million at the end of the third quarter. On the second spot was Alpine Associates which amassed $111.3 million worth of shares. D E Shaw, Renaissance Technologies, and Melqart Asset 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 Jet Capital Investors allocated the biggest weight to Acacia Communications, Inc. (NASDAQ:ACIA), around 3.66% of its portfolio. Alpine Associates is also relatively very bullish on the stock, designating 3.65 percent of its 13F equity portfolio to ACIA.

Since Acacia Communications, Inc. (NASDAQ:ACIA) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few hedgies that decided to sell off their positions entirely in the third quarter. Intriguingly, Charles Davidson and Joseph Jacobs’s Wexford Capital dropped the biggest stake of all the hedgies watched by Insider Monkey, comprising about $5.8 million in stock. Noam Gottesman’s fund, GLG Partners, also sold off its stock, about $5.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Acacia Communications, Inc. (NASDAQ:ACIA). We will take a look at Fluor Corporation (NYSE:FLR), Brooks Automation, Inc. (NASDAQ:BRKS), Brandywine Realty Trust (NYSE:BDN), and M.D.C. Holdings, Inc. (NYSE:MDC). This group of stocks’ market values are closest to ACIA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLR 18 210283 -3
BRKS 12 153378 -1
BDN 17 121356 3
MDC 17 114744 0
Average 16 149940 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $508 million in ACIA’s case. Fluor Corporation (NYSE:FLR) is the most popular stock in this table. On the other hand Brooks Automation, Inc. (NASDAQ:BRKS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Acacia Communications, Inc. (NASDAQ:ACIA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ACIA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ACIA were disappointed as the stock returned 1.9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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