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 Axcelis Technologies Inc (NASDAQ:ACLS) to find out whether it was one of their high conviction long-term ideas.
Axcelis Technologies Inc (NASDAQ:ACLS) was in 15 hedge funds' portfolios at the end of the third quarter of 2019. ACLS investors should pay attention to an increase in support from the world's most elite money managers lately. There were 14 hedge funds in our database with ACLS positions at the end of the previous quarter. Our calculations also showed that ACLS 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_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to view the new hedge fund action encompassing Axcelis Technologies Inc (NASDAQ:ACLS).
How have hedgies been trading Axcelis Technologies Inc (NASDAQ:ACLS)?
At Q3's end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ACLS over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Richard Mashaal's Rima Senvest Management has the most valuable position in Axcelis Technologies Inc (NASDAQ:ACLS), worth close to $46.9 million, amounting to 4% of its total 13F portfolio. Coming in second is Chuck Royce of Royce & Associates, with a $14.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Chet Kapoor's Tenzing Global Investors, Cliff Asness's AQR Capital Management and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Axcelis Technologies Inc (NASDAQ:ACLS), around 5.27% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, earmarking 4.05 percent of its 13F equity portfolio to ACLS.
As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Axcelis Technologies Inc (NASDAQ:ACLS). Arrowstreet Capital had $1.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $0.6 million position during the quarter. The other funds with brand new ACLS positions are Israel Englander's Millennium Management and Peter Muller's PDT Partners.
Let's also examine hedge fund activity in other stocks similar to Axcelis Technologies Inc (NASDAQ:ACLS). These stocks are Morphic Holding, Inc. (NASDAQ:MORF), AudioCodes Ltd. (NASDAQ:AUDC), EverQuote, Inc. (NASDAQ:EVER), and i3 Verticals, Inc. (NASDAQ:IIIV). This group of stocks' market caps are closest to ACLS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MORF,3,51522,-3 AUDC,13,22667,2 EVER,13,62810,2 IIIV,10,48762,-3 Average,9.75,46440,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $87 million in ACLS's case. AudioCodes Ltd. (NASDAQ:AUDC) is the most popular stock in this table. On the other hand Morphic Holding, Inc. (NASDAQ:MORF) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Axcelis Technologies Inc (NASDAQ:ACLS) is more popular among hedge funds. 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. Hedge funds were also right about betting on ACLS as the stock returned 25.5% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.