Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Here’s What Hedge Funds Think About Aerie Pharmaceuticals Inc (AERI)

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Aerie Pharmaceuticals Inc (NASDAQ:AERI) during the quarter below.

Aerie Pharmaceuticals Inc (NASDAQ:AERI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2018. 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 Arcos Dorados Holding Inc (NYSE:ARCO), Scientific Games Corp (NASDAQ:SGMS), and Evolent Health Inc (NYSE:EVH) to gather more data points.

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 32 percentage points since May 2014 through March 12, 2019 (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.

Jim Tananbaum - Foresite Capital

We’re going to take a gander at the key hedge fund action encompassing Aerie Pharmaceuticals Inc (NASDAQ:AERI).

What does the smart money think about Aerie Pharmaceuticals Inc (NASDAQ:AERI)?

At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in AERI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with AERI Positions

More specifically, Adage Capital Management was the largest shareholder of Aerie Pharmaceuticals Inc (NASDAQ:AERI), with a stake worth $113.6 million reported as of the end of December. Trailing Adage Capital Management was Healthcor Management LP, which amassed a stake valued at $88.8 million. Foresite Capital, Partner Fund Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Aerie Pharmaceuticals Inc (NASDAQ:AERI) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes heading into Q3. At the top of the heap, Steve Cohen’s Point72 Asset Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $12.5 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $6.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out 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 Arcos Dorados Holding Inc (NYSE:ARCO), Scientific Games Corp (NASDAQ:SGMS), Evolent Health Inc (NYSE:EVH), and Endo International plc (NASDAQ:ENDP). This group of stocks’ market valuations are similar to AERI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARCO 14 155551 -4
SGMS 26 549206 1
EVH 14 107531 1
ENDP 23 269495 1
Average 19.25 270446 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $628 million in AERI’s case. Scientific Games Corp (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Arcos Dorados Holding Inc (NYSE:ARCO) is the least popular one with only 14 bullish hedge fund positions. Aerie Pharmaceuticals Inc (NASDAQ:AERI) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AERI wasn’t nearly as popular as these 15 stock and hedge funds that were betting on AERI were disappointed as the stock returned 6.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading...