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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Aclaris Therapeutics, Inc. (NASDAQ:ACRS).
Is ACRS a good stock to buy now? The best stock pickers were getting less bullish. The number of long hedge fund bets went down by 2 recently. Aclaris Therapeutics, Inc. (NASDAQ:ACRS) was in 16 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that ACRS 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 18 hedge funds in our database with ACRS 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.
Phillip Gross of Adage Capital
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. With all of this in mind let's review the recent hedge fund action encompassing Aclaris Therapeutics, Inc. (NASDAQ:ACRS).
Do Hedge Funds Think ACRS Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in ACRS a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Aclaris Therapeutics, Inc. (NASDAQ:ACRS), with a stake worth $8.8 million reported as of the end of September. Trailing Renaissance Technologies was Adage Capital Management, which amassed a stake valued at $6.4 million. Samsara BioCapital, Rock Springs Capital Management, and Parkman Healthcare Partners 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 Samsara BioCapital allocated the biggest weight to Aclaris Therapeutics, Inc. (NASDAQ:ACRS), around 1.54% of its 13F portfolio. Foresite Capital is also relatively very bullish on the stock, designating 1.31 percent of its 13F equity portfolio to ACRS.
Judging by the fact that Aclaris Therapeutics, Inc. (NASDAQ:ACRS) has experienced a decline in interest from the smart money, it's safe to say that there lies a certain "tier" of hedge funds who sold off their full holdings last quarter. Intriguingly, Farhad Nanji and Michael DeMichele's MFN Partners cut the biggest stake of the "upper crust" of funds watched by Insider Monkey, worth about $5.4 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund sold off about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Aclaris Therapeutics, Inc. (NASDAQ:ACRS) but similarly valued. These stocks are Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP), Pro-Dex, Inc. (NASDAQ:PDEX), X4 Pharmaceuticals, Inc. (NASDAQ:XFOR), Kura Sushi USA, Inc. (NASDAQ:KRUS), Cumulus Media Inc (NASDAQ:CMLS), IntriCon Corporation (NASDAQ:IIN), and Palatin Technologies, Inc. (NYSE:PTN). All of these stocks' market caps resemble ACRS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNXP,2,135,1 PDEX,3,1841,1 XFOR,8,23452,-2 KRUS,5,17140,1 CMLS,7,24191,-4 IIN,3,16288,0 PTN,4,2079,-9 Average,4.6,12161,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.6 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $46 million in ACRS's case. X4 Pharmaceuticals, Inc. (NASDAQ:XFOR) is the most popular stock in this table. On the other hand Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Aclaris Therapeutics, Inc. (NASDAQ:ACRS) is more popular among hedge funds. Our overall hedge fund sentiment score for ACRS is 73. 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 ACRS as the stock returned 52.9% 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.
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Disclosure: None. This article was originally published at Insider Monkey.