Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Aerie Pharmaceuticals Inc (NASDAQ:AERI) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds' portfolios at the end of the first quarter of 2019. At the end of this article we will also compare AERI to other stocks including DiamondRock Hospitality Company (NYSE:DRH), Zuora, Inc. (NYSE:ZUO), and Carpenter Technology Corporation (NYSE:CRS) to get a better sense of its popularity.
In the 21st century investor’s toolkit there are dozens of metrics market participants employ to evaluate publicly traded companies. A pair of the most innovative metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can outpace the market by a very impressive amount (see the details here).
We're going to take a look at the key hedge fund action surrounding Aerie Pharmaceuticals Inc (NASDAQ:AERI).
What does the smart money think about Aerie Pharmaceuticals Inc (NASDAQ:AERI)?
At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AERI over the last 15 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Aerie Pharmaceuticals Inc (NASDAQ:AERI) was held by Adage Capital Management, which reported holding $107.2 million worth of stock at the end of March. It was followed by Foresite Capital with a $92.6 million position. Other investors bullish on the company included Consonance Capital Management, Deerfield Management, and Sectoral Asset Management.
Seeing as Aerie Pharmaceuticals Inc (NASDAQ:AERI) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of hedgies who sold off their full holdings last quarter. Interestingly, Arthur B Cohen and Joseph Healey's Healthcor Management LP said goodbye to the largest investment of all the hedgies watched by Insider Monkey, totaling about $88.8 million in stock, and Christopher James's Partner Fund Management was right behind this move, as the fund dumped about $68.4 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Aerie Pharmaceuticals Inc (NASDAQ:AERI). These stocks are DiamondRock Hospitality Company (NYSE:DRH), Zuora, Inc. (NYSE:ZUO), Carpenter Technology Corporation (NYSE:CRS), and American Assets Trust, Inc (NYSE:AAT). All of these stocks' market caps are closest to AERI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRH,13,206595,-6 ZUO,21,116298,7 CRS,13,82466,-2 AAT,14,114971,0 Average,15.25,130083,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $532 million in AERI's case. Zuora, Inc. (NYSE:ZUO) is the most popular stock in this table. On the other hand DiamondRock Hospitality Company (NYSE:DRH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Aerie Pharmaceuticals Inc (NASDAQ:AERI) is more popular among hedge funds. 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 AERI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AERI were disappointed as the stock returned -20% during the same 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 in Q2.
Disclosure: None. This article was originally published at Insider Monkey.