Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Aerie Pharmaceuticals Inc (NASDAQ:AERI) to find out whether there were any major changes in hedge funds’ views.
Is AERI a good stock to buy now? Aerie Pharmaceuticals Inc (NASDAQ:AERI) has seen a decrease in enthusiasm from smart money recently. Aerie Pharmaceuticals Inc (NASDAQ:AERI) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 31. There were 23 hedge funds in our database with AERI holdings at the end of June. Our calculations also showed that AERI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a glance at the latest hedge fund action regarding Aerie Pharmaceuticals Inc (NASDAQ:AERI).
Do Hedge Funds Think AERI Is A Good Stock To Buy Now?
At the end of September, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in AERI a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Christopher James’s Partner Fund Management has the largest position in Aerie Pharmaceuticals Inc (NASDAQ:AERI), worth close to $26.2 million, accounting for 1.2% of its total 13F portfolio. On Partner Fund Management’s heels is John A. Levin of Levin Capital Strategies, with a $15.9 million position; 2.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish encompass Ken Griffin’s Citadel Investment Group, Henrik Rhenman’s Rhenman & Partners Asset Management and Mark Kingdon’s Kingdon Capital. In terms of the portfolio weights assigned to each position Levin Capital Strategies allocated the biggest weight to Aerie Pharmaceuticals Inc (NASDAQ:AERI), around 2.07% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, dishing out 1.21 percent of its 13F equity portfolio to AERI.
Judging by the fact that Aerie Pharmaceuticals Inc (NASDAQ:AERI) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes heading into Q4. It’s worth mentioning that Philip Hempleman’s Ardsley Partners cut the largest investment of the 750 funds watched by Insider Monkey, worth an estimated $3.8 million in stock. Richard Chilton’s fund, Chilton Investment Company, also dropped its stock, about $0.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 8 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Aerie Pharmaceuticals Inc (NASDAQ:AERI). These stocks are Golden Ocean Group Ltd (NASDAQ:GOGL), CIRCOR International, Inc. (NYSE:CIR), Humanigen, Inc. (NASDAQ:HGEN), International Money Express, Inc. (NASDAQ:IMXI), Molecular Templates, Inc. (NASDAQ:MTEM), Endeavour Silver Corp. (NYSE:EXK), and Harmonic Inc (NASDAQ:HLIT). This group of stocks’ market values are similar to AERI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $96 million in AERI’s case. Molecular Templates, Inc. (NASDAQ:MTEM) is the most popular stock in this table. On the other hand Golden Ocean Group Ltd (NASDAQ:GOGL) is the least popular one with only 5 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. Our overall hedge fund sentiment score for AERI is 40.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately AERI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AERI were disappointed as the stock returned 6.9% since the end of September (through 12/14) 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.