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Aerie Pharmaceuticals Inc (AERI): Hedge Funds Are Nibbling

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Aerie Pharmaceuticals Inc (NASDAQ:AERI) based on that data.

Is Aerie Pharmaceuticals Inc (NASDAQ:AERI) a superb investment now? Money managers are becoming more confident. The number of bullish hedge fund bets advanced by 3 lately. Our calculations also showed that AERI 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 a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_364894" align="aligncenter" width="400"]

James Flynn Deerfield Management
James Flynn Deerfield Management

James E. Flynn of Deerfield Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the new hedge fund action surrounding Aerie Pharmaceuticals Inc (NASDAQ:AERI).

How have hedgies been trading Aerie Pharmaceuticals Inc (NASDAQ:AERI)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AERI over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AERI A Good Stock To Buy?
Is AERI A Good Stock To Buy?

More specifically, Deerfield Management was the largest shareholder of Aerie Pharmaceuticals Inc (NASDAQ:AERI), with a stake worth $34.2 million reported as of the end of September. Trailing Deerfield Management was Partner Fund Management, which amassed a stake valued at $34.1 million. Levin Capital Strategies, Kingdon Capital, and Rhenman & Partners Asset Management 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 Foresite Capital allocated the biggest weight to Aerie Pharmaceuticals Inc (NASDAQ:AERI), around 7.66% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, dishing out 3.27 percent of its 13F equity portfolio to AERI.

As aggregate interest increased, key money managers have been driving this bullishness. Rhenman & Partners Asset Management, managed by Henrik Rhenman, assembled the most outsized position in Aerie Pharmaceuticals Inc (NASDAQ:AERI). Rhenman & Partners Asset Management had $9.7 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $5.5 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Minhua Zhang's Weld Capital Management.

Let's go over hedge fund activity in other stocks similar to Aerie Pharmaceuticals Inc (NASDAQ:AERI). These stocks are AAR Corp. (NYSE:AIR), Bloomin' Brands Inc (NASDAQ:BLMN), Qutoutiao Inc. (NASDAQ:QTT), and PDC Energy Inc (NASDAQ:PDCE). This group of stocks' market caps are similar to AERI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIR,18,42644,-5 BLMN,24,88391,6 QTT,9,5239,4 PDCE,25,114905,-7 Average,19,62795,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $158 million in AERI's case. PDC Energy Inc (NASDAQ:PDCE) is the most popular stock in this table. On the other hand Qutoutiao Inc. (NASDAQ:QTT) is the least popular one with only 9 bullish hedge fund positions. Aerie Pharmaceuticals Inc (NASDAQ:AERI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately AERI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AERI were disappointed as the stock returned 10.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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