Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Chimerix Inc (NASDAQ:CMRX)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Chimerix Inc (NASDAQ:CMRX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CMRX to other stocks including Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL), Ocular Therapeutix Inc (NASDAQ:OCUL), and Synalloy Corporation (NASDAQ:SYNL) to get a better sense of its popularity. 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_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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. Let's take a glance at the fresh hedge fund action surrounding Chimerix Inc (NASDAQ:CMRX).
How have hedgies been trading Chimerix Inc (NASDAQ:CMRX)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in CMRX a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Redmile Group held the most valuable stake in Chimerix Inc (NASDAQ:CMRX), which was worth $7.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $5.4 million worth of shares. RA Capital Management, Citadel Investment Group, and D E Shaw 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 Redmile Group allocated the biggest weight to Chimerix Inc (NASDAQ:CMRX), around 0.25% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, dishing out 0.25 percent of its 13F equity portfolio to CMRX.
Judging by the fact that Chimerix Inc (NASDAQ:CMRX) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that decided to sell off their positions entirely in the third quarter. Intriguingly, James A. Silverman's Opaleye Management sold off the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $6.4 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dumped about $1.3 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 check out hedge fund activity in other stocks - not necessarily in the same industry as Chimerix Inc (NASDAQ:CMRX) but similarly valued. These stocks are Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL), Ocular Therapeutix Inc (NASDAQ:OCUL), Synalloy Corporation (NASDAQ:SYNL), and AXT Inc (NASDAQ:AXTI). This group of stocks' market values resemble CMRX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PANL,2,145,-1 OCUL,4,14426,-1 SYNL,4,20022,1 AXTI,8,12058,1 Average,4.5,11663,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $26 million in CMRX's case. AXT Inc (NASDAQ:AXTI) is the most popular stock in this table. On the other hand Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Chimerix Inc (NASDAQ:CMRX) 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. Unfortunately CMRX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CMRX were disappointed as the stock returned -6.4% 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.