Is Alkermes Plc (ALKS) Going To Burn These Hedge Funds ?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Alkermes Plc (NASDAQ:ALKS).

Is Alkermes Plc (NASDAQ:ALKS) the right pick for your portfolio? The best stock pickers are taking an optimistic view. The number of long hedge fund positions improved by 1 in recent months. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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.

John Overdeck of Two Sigma

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 check out the key hedge fund action surrounding Alkermes Plc (NASDAQ:ALKS).

Hedge fund activity in Alkermes Plc (NASDAQ:ALKS)

Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in ALKS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ALKS Positions

Among these funds, Renaissance Technologies held the most valuable stake in Alkermes Plc (NASDAQ:ALKS), which was worth $89 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $53.1 million worth of shares. Moreover, Two Sigma Advisors, D E Shaw, and Millennium Management were also bullish on Alkermes Plc (NASDAQ:ALKS), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, specific money managers have jumped into Alkermes Plc (NASDAQ:ALKS) headfirst. Camber Capital Management, managed by Stephen DuBois, established the most valuable position in Alkermes Plc (NASDAQ:ALKS). Camber Capital Management had $4.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $3.4 million investment in the stock during the quarter. The other funds with brand new ALKS positions are Steve Cohen’s Point72 Asset Management, Sander Gerber’s Hudson Bay Capital Management, and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Alkermes Plc (NASDAQ:ALKS) but similarly valued. We will take a look at Omnicell, Inc. (NASDAQ:OMCL), Laureate Education, Inc. (NASDAQ:LAUR), Valley National Bancorp (NASDAQ:VLY), and Telephone and Data Systems, Inc. (NYSE:TDS). This group of stocks’ market valuations resemble ALKS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMCL 18 96471 3
LAUR 23 427225 2
VLY 11 10337 0
TDS 25 393297 2
Average 19.25 231833 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $251 million in ALKS’s case. Telephone and Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 11 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -13.4% 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.