You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Alkermes Plc (NASDAQ:ALKS) shareholders have witnessed an increase in support from the world’s most elite money managers of late. ALKS was in 22 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with ALKS holdings at the end of the previous quarter. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a glance at the recent hedge fund action encompassing Alkermes Plc (NASDAQ:ALKS).
What have hedge funds been doing with Alkermes Plc (NASDAQ:ALKS)?
At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ALKS over the last 15 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Neil Woodford’s Woodford Investment Management has the number one position in Alkermes Plc (NASDAQ:ALKS), worth close to $96.3 million, corresponding to 7.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, led by Jim Simons, holding a $60.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors.
As industrywide interest jumped, specific money managers have been driving this bullishness. Tamarack Capital Management, managed by Justin John Ferayorni, assembled the most outsized position in Alkermes Plc (NASDAQ:ALKS). Tamarack Capital Management had $5.1 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.8 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Alkermes Plc (NASDAQ:ALKS). These stocks are James Hardie Industries plc (NYSE:JHX), Harley-Davidson, Inc. (NYSE:HOG), CyrusOne Inc (NASDAQ:CONE), and RealPage, Inc. (NASDAQ:RP). This group of stocks’ market valuations are similar to ALKS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JHX | 2 | 4238 | 0 |
| HOG | 16 | 54823 | -3 |
| CONE | 17 | 193050 | 3 |
| RP | 26 | 435872 | 5 |
| Average | 15.25 | 171996 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $309 million in ALKS’s case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Alkermes Plc (NASDAQ:ALKS) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ALKS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALKS were disappointed as the stock returned -39.6% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
