We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Intra-Cellular Therapies Inc (NASDAQ:ITCI).
Hedge fund interest in Intra-Cellular Therapies Inc (NASDAQ:ITCI) 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 ITCI to other stocks including New Frontier Corporation (NYSE:NFC), Chuy's Holdings Inc (NASDAQ:CHUY), and IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP) 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.
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 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. 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_27480" align="aligncenter" width="450"] Israel Englander of Millennium Management[/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 check out the fresh hedge fund action encompassing Intra-Cellular Therapies Inc (NASDAQ:ITCI).
How have hedgies been trading Intra-Cellular Therapies Inc (NASDAQ:ITCI)?
Heading into the fourth quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in ITCI a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Intra-Cellular Therapies Inc (NASDAQ:ITCI) was held by Millennium Management, which reported holding $9.2 million worth of stock at the end of September. It was followed by Samlyn Capital with a $8.8 million position. Other investors bullish on the company included Citadel Investment Group, Point72 Asset Management, and D E Shaw. In terms of the portfolio weights assigned to each position Opaleye Management allocated the biggest weight to Intra-Cellular Therapies Inc (NASDAQ:ITCI), around 0.46% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to ITCI.
Since Intra-Cellular Therapies Inc (NASDAQ:ITCI) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of funds who sold off their entire stakes heading into Q4. At the top of the heap, Principal Global Investors's Columbus Circle Investors dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $6.9 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund sold off about $2.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Intra-Cellular Therapies Inc (NASDAQ:ITCI). These stocks are New Frontier Corporation (NYSE:NFC), Chuy's Holdings Inc (NASDAQ:CHUY), IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP), and Sierra Bancorp (NASDAQ:BSRR). This group of stocks' market valuations match ITCI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NFC,13,71506,1 CHUY,10,27713,-2 IRCP,4,13177,0 BSRR,10,14970,3 Average,9.25,31842,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $34 million in ITCI's case. New Frontier Corporation (NYSE:NFC) is the most popular stock in this table. On the other hand IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP) is the least popular one with only 4 bullish hedge fund positions. Intra-Cellular Therapies Inc (NASDAQ:ITCI) is not the most popular stock in this group but hedge fund interest is still above average. 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 ITCI as the stock returned 30% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.