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Were Hedge Funds Right About Being Bullish On Acacia Research Corporation (ACTG)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Acacia Research Corporation (NASDAQ:ACTG) and determine whether the smart money was really smart about this stock.

Acacia Research Corporation (NASDAQ:ACTG) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare ACTG to other stocks including Solid Biosciences Inc. (NASDAQ:SLDB), Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), and Community Bankers Trust Corp. (NASDAQ:ESXB) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are perceived as worthless, outdated financial vehicles of the past. While there are more than 8000 funds in operation today, We look at the crème de la crème of this club, around 850 funds. These money managers have their hands on the lion’s share of the smart money’s total capital, and by tailing their highest performing picks, Insider Monkey has spotted many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the recent hedge fund action encompassing Acacia Research Corporation (NASDAQ:ACTG).

Hedge fund activity in Acacia Research Corporation (NASDAQ:ACTG)

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ACTG over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Acacia Research Corporation (NASDAQ:ACTG) was held by Renaissance Technologies, which reported holding $7.3 million worth of stock at the end of September. It was followed by Ariel Investments with a $4.9 million position. Other investors bullish on the company included Invenomic Capital Management, Ancora Advisors, and Callodine Capital Management. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to Acacia Research Corporation (NASDAQ:ACTG), around 1.33% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to ACTG.

Because Acacia Research Corporation (NASDAQ:ACTG) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $0.5 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Acacia Research Corporation (NASDAQ:ACTG). These stocks are Solid Biosciences Inc. (NASDAQ:SLDB), Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), Community Bankers Trust Corp. (NASDAQ:ESXB), and Resolute Forest Products Inc (NYSE:RFP). This group of stocks’ market values match ACTG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SLDB 11 30585 0
RRGB 7 6166 -4
ESXB 7 14001 2
RFP 9 43202 -5
Average 8.5 23489 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $17 million in ACTG’s case. Solid Biosciences Inc. (NASDAQ:SLDB) is the most popular stock in this table. On the other hand Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Acacia Research Corporation (NASDAQ:ACTG) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ACTG as the stock returned 84.2% in Q2 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.

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