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How Did Aerie Pharmaceuticals Inc (AERI) Perform In Comparison to Hedge Fund Favorites in 2019?

Nina Todic

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Aerie Pharmaceuticals Inc (NASDAQ:AERI) and see how the stock performed in comparison to hedge funds' consensus picks.

Aerie Pharmaceuticals Inc (NASDAQ:AERI) investors should be aware of an increase in hedge fund sentiment in recent months. AERI was in 28 hedge funds' portfolios at the end of the third quarter of 2019. There were 18 hedge funds in our database with AERI positions at the end of the previous quarter. Our calculations also showed that AERI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In today’s marketplace there are plenty of metrics stock market investors employ to grade stocks. A couple of the best metrics are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can outpace their index-focused peers by a solid amount (see the details here).

[caption id="attachment_364889" align="aligncenter" width="541"] Jim Tananbaum of Foresite Capital[/caption]

Jim Tananbaum - Foresite Capital

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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Keeping this in mind let's check out the new hedge fund action encompassing Aerie Pharmaceuticals Inc (NASDAQ:AERI).

Hedge fund activity in Aerie Pharmaceuticals Inc (NASDAQ:AERI)

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 56% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AERI over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Deerfield Management was the largest shareholder of Aerie Pharmaceuticals Inc (NASDAQ:AERI), with a stake worth $87.8 million reported as of the end of September. Trailing Deerfield Management was Foresite Capital, which amassed a stake valued at $45.2 million. Partner Fund Management, Point72 Asset Management, and Levin Capital Strategies 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 Foresite Capital allocated the biggest weight to Aerie Pharmaceuticals Inc (NASDAQ:AERI), around 17.25% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 3.62 percent of its 13F equity portfolio to AERI.

Consequently, specific money managers have been driving this bullishness. Partner Fund Management, managed by Christopher James, created the most valuable position in Aerie Pharmaceuticals Inc (NASDAQ:AERI). Partner Fund Management had $35.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $27.2 million position during the quarter. The following funds were also among the new AERI investors: Mark Kingdon's Kingdon Capital, Dmitry Balyasny's Balyasny Asset Management, and Ken Greenberg and David Kim's Ghost Tree Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Aerie Pharmaceuticals Inc (NASDAQ:AERI) but similarly valued. We will take a look at ANI Pharmaceuticals Inc (NASDAQ:ANIP), Twin River Worldwide Holdings Inc. (NYSE:TRWH), QEP Resources Inc (NYSE:QEP), and Upland Software Inc (NASDAQ:UPLD). This group of stocks' market valuations are similar to AERI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANIP,15,96846,3 TRWH,14,207108,0 QEP,20,155279,2 UPLD,26,185976,2 Average,18.75,161302,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $324 million in AERI's case. Upland Software Inc (NASDAQ:UPLD) is the most popular stock in this table. On the other hand Twin River Worldwide Holdings Inc. (NYSE:TRWH) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Aerie Pharmaceuticals Inc (NASDAQ:AERI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AERI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AERI were disappointed as the stock returned -33% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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