Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) to find out whether it was one of their high conviction long-term ideas.
AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that AVEO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the key hedge fund action regarding AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO).
How are hedge funds trading AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in AVEO a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, 683 Capital Partners was the largest shareholder of AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), with a stake worth $1.7 million reported as of the end of September. Trailing 683 Capital Partners was Winton Capital Management, which amassed a stake valued at $0.5 million. Millennium Management, LMR Partners, and Citadel Investment Group 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 683 Capital Partners allocated the biggest weight to AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), around 0.19% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to AVEO.
Because AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) has faced falling interest from hedge fund managers, we can see that there is a sect of hedgies that elected to cut their positions entirely last quarter. It's worth mentioning that Donald Sussman's Paloma Partners sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $0.3 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund sold off about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO). These stocks are Stewardship Financial Corp (NASDAQ:SSFN), LSI Industries, Inc. (NASDAQ:LYTS), AgroFresh Solutions Inc (NASDAQ:AGFS), and Montage Resources Corporation (NYSE:MR). This group of stocks' market valuations are closest to AVEO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSFN,7,13701,2 LYTS,9,18319,0 AGFS,8,2189,2 MR,12,14558,-3 Average,9,12192,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $3 million in AVEO's case. Montage Resources Corporation (NYSE:MR) is the most popular stock in this table. On the other hand Stewardship Financial Corp (NASDAQ:SSFN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) is even less popular than SSFN. Hedge funds dodged a bullet by taking a bearish stance towards AVEO. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AVEO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AVEO investors were disappointed as the stock returned -9.5% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.