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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) and determine whether the smart money was really smart about this stock.
Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of the first quarter of 2020. At the end of this article we will also compare CYCN to other stocks including Aldeyra Therapeutics Inc (NASDAQ:ALDX), Centennial Resource Development, Inc. (NASDAQ:CDEV), and Delta Apparel, Inc. (NYSE:DLA) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Phill Gross of Adage Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a peek at the latest hedge fund action surrounding Cyclerion Therapeutics, Inc. (NASDAQ:CYCN).
How have hedgies been trading Cyclerion Therapeutics, Inc. (NASDAQ:CYCN)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CYCN over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) was held by EcoR1 Capital, which reported holding $7.3 million worth of stock at the end of September. It was followed by MFN Partners with a $6.4 million position. Other investors bullish on the company included Slate Path Capital, Eversept Partners, and AWH Capital. In terms of the portfolio weights assigned to each position AWH Capital allocated the biggest weight to Cyclerion Therapeutics, Inc. (NASDAQ:CYCN), around 4.66% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, setting aside 0.85 percent of its 13F equity portfolio to CYCN.
Because Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of hedgies who were dropping their full holdings last quarter. It's worth mentioning that Farallon Capital dumped the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at close to $1 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also dumped its stock, about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) but similarly valued. These stocks are Aldeyra Therapeutics Inc (NASDAQ:ALDX), Centennial Resource Development, Inc. (NASDAQ:CDEV), Delta Apparel, Inc. (NYSE:DLA), and Eton Pharmaceuticals, Inc. (NASDAQ:ETON). All of these stocks' market caps resemble CYCN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALDX,12,23006,0 CDEV,18,17555,-11 DLA,4,4188,-1 ETON,4,18066,2 Average,9.5,15704,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $20 million in CYCN's case. Centennial Resource Development, Inc. (NASDAQ:CDEV) is the most popular stock in this table. On the other hand Delta Apparel, Inc. (NYSE:DLA) is the least popular one with only 4 bullish hedge fund positions. Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CYCN as the stock returned 123% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.