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Is Acceleron Pharma Inc (XLRN) Going to Burn These Hedge Funds?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Acceleron Pharma Inc (NASDAQ:XLRN).

Hedge fund interest in Acceleron Pharma Inc (NASDAQ:XLRN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare XLRN to other stocks including Fanhua Inc. (NASDAQ:FANH), Urban Outfitters, Inc. (NASDAQ:URBN), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) to get a better sense of its popularity.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

XLRN_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the fresh hedge fund action regarding Acceleron Pharma Inc (NASDAQ:XLRN).

Hedge fund activity in Acceleron Pharma Inc (NASDAQ:XLRN)

Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in XLRN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

James Flynn Deerfield Management

Among these funds, Farallon Capital held the most valuable stake in Acceleron Pharma Inc (NASDAQ:XLRN), which was worth $97.6 million at the end of the second quarter. On the second spot was Great Point Partners which amassed $59.5 million worth of shares. Moreover, Deerfield Management, Alkeon Capital Management, and Point72 Asset Management were also bullish on Acceleron Pharma Inc (NASDAQ:XLRN), allocating a large percentage of their portfolios to this stock.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Laurion Capital Management).

Let’s now review hedge fund activity in other stocks similar to Acceleron Pharma Inc (NASDAQ:XLRN). We will take a look at Fanhua Inc. (NASDAQ:FANH), Urban Outfitters, Inc. (NASDAQ:URBN), Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), and Inovalon Holdings Inc (NASDAQ:INOV). This group of stocks’ market values are similar to XLRN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FANH 9 28504 -1
URBN 21 206534 -4
BHVN 38 493841 5
INOV 7 16571 -2
Average 18.75 186363 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $349 million in XLRN’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 7 bullish hedge fund positions. Acceleron Pharma Inc (NASDAQ:XLRN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately XLRN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XLRN were disappointed as the stock returned -3.8% during the third 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 many of these stocks already outperformed the market so far this year.

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

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