Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% last year. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has seen an increase in support from the world’s most elite money managers lately. ACAD was in 26 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with ACAD holdings at the end of the previous quarter. Our calculations also showed that ACAD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to view the key hedge fund action regarding ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
How are hedge funds trading ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the second quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in ACAD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) was held by Baker Bros. Advisors, which reported holding $1470.4 million worth of stock at the end of September. It was followed by D E Shaw with a $81.8 million position. Other investors bullish on the company included Great Point Partners, Palo Alto Investors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Baker Bros. Advisors allocated the biggest weight to ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), around 10% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, setting aside 7.24 percent of its 13F equity portfolio to ACAD.
As aggregate interest increased, key money managers have jumped into ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) headfirst. Farallon Capital, assembled the biggest position in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). Farallon Capital had $12.6 million invested in the company at the end of the quarter. Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management also initiated a $6.7 million position during the quarter. The following funds were also among the new ACAD investors: Paul Tudor Jones’s Tudor Investment Corp, Renaissance Technologies, and Sander Gerber’s Hudson Bay Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) but similarly valued. We will take a look at Kemper Corporation (NYSE:KMPR), Manhattan Associates, Inc. (NASDAQ:MANH), Berry Global Group Inc (NYSE:BERY), and Oshkosh Corporation (NYSE:OSK). This group of stocks’ market caps resemble ACAD’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $1911 million in ACAD’s case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 19 bullish hedge fund positions. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ACAD as the stock returned 164.6% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.