How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Neptune Wellness Solutions Inc. (NASDAQ:NEPT).
Neptune Wellness Solutions Inc. (NASDAQ:NEPT) was in 7 hedge funds' portfolios at the end of September. NEPT investors should pay attention to a decrease in hedge fund sentiment of late. There were 8 hedge funds in our database with NEPT positions at the end of the previous quarter. Our calculations also showed that NEPT 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.
If you'd ask most stock holders, hedge funds are viewed as slow, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at present, Our experts choose to focus on the crème de la crème of this club, approximately 750 funds. These money managers control the majority of the smart money's total asset base, and by observing their highest performing investments, Insider Monkey has spotted various investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_687238" align="aligncenter" width="1613"] Philip Hempleman of Ardsley Partners[/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 we're going to take a look at the fresh hedge fund action regarding Neptune Wellness Solutions Inc. (NASDAQ:NEPT).
How are hedge funds trading Neptune Wellness Solutions Inc. (NASDAQ:NEPT)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEPT over the last 17 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Joseph Edelman's Perceptive Advisors has the number one position in Neptune Wellness Solutions Inc. (NASDAQ:NEPT), worth close to $47.8 million, amounting to 1.3% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, holding a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of William Harnisch's Peconic Partners, Israel Englander's Millennium Management and Philip Hempleman's Ardsley Partners. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Neptune Wellness Solutions Inc. (NASDAQ:NEPT), around 1.29% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, dishing out 0.28 percent of its 13F equity portfolio to NEPT.
Since Neptune Wellness Solutions Inc. (NASDAQ:NEPT) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds who were dropping their full holdings by the end of the third quarter. Intriguingly, Sculptor Capital dropped the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $1 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Neptune Wellness Solutions Inc. (NASDAQ:NEPT) but similarly valued. These stocks are GTY Technology Holdings, Inc. (NASDAQ:GTYH), Metropolitan Bank Holding Corp. (NYSE:MCB), Diana Shipping Inc. (NYSE:DSX), and Kadmon Holdings, Inc. (NYSE:KDMN). All of these stocks' market caps resemble NEPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTYH,4,19976,0 MCB,8,56934,2 DSX,9,25661,0 KDMN,15,144793,0 Average,9,61841,0.5 [/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 $62 million. That figure was $49 million in NEPT's case. Kadmon Holdings, Inc. (NYSE:KDMN) is the most popular stock in this table. On the other hand GTY Technology Holdings, Inc. (NASDAQ:GTYH) is the least popular one with only 4 bullish hedge fund positions. Neptune Wellness Solutions Inc. (NASDAQ:NEPT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NEPT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEPT investors were disappointed as the stock returned -18.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.