Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Akebia Therapeutics Inc (NASDAQ:AKBA).
Akebia Therapeutics Inc (NASDAQ:AKBA) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that AKBA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a peek at the latest hedge fund action encompassing Akebia Therapeutics Inc (NASDAQ:AKBA).
What have hedge funds been doing with Akebia Therapeutics Inc (NASDAQ:AKBA)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in AKBA over the last 16 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.
Among these funds, Baupost Group held the most valuable stake in Akebia Therapeutics Inc (NASDAQ:AKBA), which was worth $118.4 million at the end of the second quarter. On the second spot was Nantahala Capital Management which amassed $28 million worth of shares. Moreover, Abrams Capital Management, Nantahala Capital Management, and Point72 Asset Management were also bullish on Akebia Therapeutics Inc (NASDAQ:AKBA), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Akebia Therapeutics Inc (NASDAQ:AKBA) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that slashed their full holdings by the end of the second quarter. Interestingly, Joseph Edelman's Perceptive Advisors dumped the largest position of all the hedgies monitored by Insider Monkey, totaling about $14 million in stock, and Mitchell Blutt's Consonance Capital Management was right behind this move, as the fund dumped about $11.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Akebia Therapeutics Inc (NASDAQ:AKBA) but similarly valued. These stocks are National CineMedia, Inc. (NASDAQ:NCMI), Gamco Investors Inc. (NYSE:GBL), FRP Holdings Inc (NASDAQ:FRPH), and EZCORP Inc (NASDAQ:EZPW). This group of stocks' market values resemble AKBA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NCMI,16,39601,-2 GBL,10,10355,1 FRPH,7,46456,-1 EZPW,21,121607,1 Average,13.5,54505,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $195 million in AKBA's case. EZCORP Inc (NASDAQ:EZPW) is the most popular stock in this table. On the other hand FRP Holdings Inc (NASDAQ:FRPH) is the least popular one with only 7 bullish hedge fund positions. Akebia Therapeutics Inc (NASDAQ:AKBA) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AKBA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AKBA were disappointed as the stock returned -19% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
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