Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) changed recently.
Hedge fund interest in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Cushman & Wakefield plc (NYSE:CWK), Armstrong World Industries, Inc. (NYSE:AWI), and Grupo Financiero Galicia S.A. (NASDAQ:GGAL) to gather more data points.
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.
Let's go over the new hedge fund action regarding ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
Hedge fund activity in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)
Heading into the second quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in ACAD a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) was held by Baker Bros. Advisors, which reported holding $1066.3 million worth of stock at the end of March. It was followed by Great Point Partners with a $53.7 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and venBio Select Advisor.
Due to the fact that ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that decided to sell off their entire stakes by the end of the third quarter. It's worth mentioning that William Leland Edwards's Palo Alto Investors dumped the largest position of all the hedgies followed by Insider Monkey, valued at about $32.8 million in stock, and Jim Simons's Renaissance Technologies was right behind this move, as the fund sold off about $9.7 million worth. These moves are intriguing to say the least, 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 ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). These stocks are Cushman & Wakefield plc (NYSE:CWK), Armstrong World Industries, Inc. (NYSE:AWI), Grupo Financiero Galicia S.A. (NASDAQ:GGAL), and American Eagle Outfitters Inc. (NYSE:AEO). This group of stocks' market caps are closest to ACAD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWK,26,308713,13 AWI,25,521911,-1 GGAL,17,114741,-2 AEO,25,459761,-2 Average,23.25,351282,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $1311 million in ACAD's case. Cushman & Wakefield plc (NYSE:CWK) is the most popular stock in this table. On the other hand Grupo Financiero Galicia S.A. (NASDAQ:GGAL) is the least popular one with only 17 bullish hedge fund positions. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ACAD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACAD investors were disappointed as the stock returned -7.3% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.