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Were Hedge Funds Right About Axsome Therapeutics, Inc. (AXSM)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Axsome Therapeutics, Inc. (NASDAQ:AXSM) and determine whether hedge funds skillfully traded this stock.

Axsome Therapeutics, Inc. (NASDAQ:AXSM) was in 24 hedge funds’ portfolios at the end of March. AXSM has experienced a decrease in support from the world’s most elite money managers lately. There were 25 hedge funds in our database with AXSM holdings at the end of the previous quarter. Our calculations also showed that AXSM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are tons of indicators investors use to grade their holdings. A pair of the most under-the-radar indicators are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the elite money managers can beat the S&P 500 by a healthy margin (see the details here).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to review the recent hedge fund action surrounding Axsome Therapeutics, Inc. (NASDAQ:AXSM).

What have hedge funds been doing with Axsome Therapeutics, Inc. (NASDAQ:AXSM)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AXSM over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Axsome Therapeutics, Inc. (NASDAQ:AXSM) was held by RA Capital Management, which reported holding $112 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $69 million position. Other investors bullish on the company included Baker Bros. Advisors, Citadel Investment Group, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Acuta Capital Partners allocated the biggest weight to Axsome Therapeutics, Inc. (NASDAQ:AXSM), around 8.8% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, designating 3.54 percent of its 13F equity portfolio to AXSM.

Judging by the fact that Axsome Therapeutics, Inc. (NASDAQ:AXSM) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few fund managers that decided to sell off their full holdings in the first quarter. Intriguingly, Farallon Capital cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $45.7 million in stock. Arthur B Cohen and Joseph Healey’s fund, Healthcor Management LP, also dropped its stock, about $42.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Axsome Therapeutics, Inc. (NASDAQ:AXSM) but similarly valued. These stocks are MyoKardia, Inc. (NASDAQ:MYOK), GrafTech International Ltd. (NYSE:EAF), Allakos Inc. (NASDAQ:ALLK), and Cohen & Steers, Inc. (NYSE:CNS). All of these stocks’ market caps are similar to AXSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MYOK 33 562366 7
EAF 23 126467 -10
ALLK 12 207018 -3
CNS 20 67034 4
Average 22 240721 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $241 million. That figure was $458 million in AXSM’s case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 12 bullish hedge fund positions. Axsome Therapeutics, Inc. (NASDAQ:AXSM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on AXSM as the stock returned 39.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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