We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Akebia Therapeutics Inc (NASDAQ:AKBA).
Is AKBA a good stock to buy now? Prominent investors were in a bearish mood. The number of bullish hedge fund bets were trimmed by 7 recently. Akebia Therapeutics Inc (NASDAQ:AKBA) was in 18 hedge funds’ portfolios at the end of September. The all time high for this statistic is 25. Our calculations also showed that AKBA 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). There were 25 hedge funds in our database with AKBA positions at the end of the second quarter.
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. Now we’re going to take a peek at the key hedge fund action surrounding Akebia Therapeutics Inc (NASDAQ:AKBA).
Do Hedge Funds Think AKBA Is A Good Stock To Buy Now?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in AKBA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Nantahala Capital Management was the largest shareholder of Akebia Therapeutics Inc (NASDAQ:AKBA), with a stake worth $14.4 million reported as of the end of September. Trailing Nantahala Capital Management was Abrams Capital Management, which amassed a stake valued at $14.2 million. Woodline Partners, Millennium Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Woodline Partners allocated the biggest weight to Akebia Therapeutics Inc (NASDAQ:AKBA), around 0.45% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, designating 0.45 percent of its 13F equity portfolio to AKBA.
Since Akebia Therapeutics Inc (NASDAQ:AKBA) has faced falling interest from hedge fund managers, it’s safe to say that there were a few hedge funds who sold off their positions entirely last quarter. Interestingly, Seth Klarman’s Baupost Group dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, worth close to $203.7 million in stock. Mitchell Blutt’s fund, Consonance Capital Management, also said goodbye to its stock, about $95.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Akebia Therapeutics Inc (NASDAQ:AKBA). These stocks are NextDecade Corporation (NASDAQ:NEXT), Crescent Capital BDC, Inc. (NASDAQ:CCAP), PDL BioPharma Inc. (NASDAQ:PDLI), Interface, Inc. (NASDAQ:TILE), Dorchester Minerals LP (NASDAQ:DMLP), Chatham Lodging Trust (NYSE:CLDT), and Village Super Market, Inc. (NASDAQ:VLGEA). All of these stocks’ market caps match AKBA’s market cap.
|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 10 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $59 million in AKBA’s case. Interface, Inc. (NASDAQ:TILE) is the most popular stock in this table. On the other hand NextDecade Corporation (NASDAQ:NEXT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Akebia Therapeutics Inc (NASDAQ:AKBA) is more popular among hedge funds. Our overall hedge fund sentiment score for AKBA is 69.6. 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. 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 returned 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on AKBA as the stock returned 26.7% since the end of September (through 12/14) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.