At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT).
Is EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) a splendid investment right now? The smart money is becoming hopeful. The number of bullish hedge fund positions moved up by 1 in recent months. Our calculations also showed that EYPT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). 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 44 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.
[caption id="attachment_758454" align="aligncenter" width="399"] James Dondero of Highland Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the fresh hedge fund action encompassing EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT).
How are hedge funds trading EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT)?
At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in EYPT over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT), which was worth $0.5 million at the end of the third quarter. On the second spot was Highland Capital Management which amassed $0.2 million worth of shares. Citadel Investment Group was 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 Highland Capital Management allocated the biggest weight to EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT), around 0.03% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.0011 percent of its 13F equity portfolio to EYPT.
Consequently, some big names have jumped into EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) headfirst. Millennium Management, managed by Israel Englander, assembled the largest position in EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT). Millennium Management had $0.5 million invested in the company at the end of the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) but similarly valued. These stocks are Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS), Lakeland Industries, Inc. (NASDAQ:LAKE), Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), and Safe Bulkers, Inc. (NYSE:SB). All of these stocks' market caps match EYPT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PIRS,19,47612,-2 LAKE,9,18007,5 PEBK,2,5139,0 SB,6,6525,-1 Average,9,19321,0.5 [/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 $19 million. That figure was $1 million in EYPT's case. Pieris Pharmaceuticals, Inc. (NASDAQ:PIRS) is the most popular stock in this table. On the other hand Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) is the least popular one with only 2 bullish hedge fund positions. EyePoint Pharmaceuticals, Inc. (NASDAQ:EYPT) 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 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately EYPT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EYPT investors were disappointed as the stock returned -13.7% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.