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 Acacia Communications, Inc. (NASDAQ:ACIA).
Acacia Communications, Inc. (NASDAQ:ACIA) investors should pay attention to a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that ACIA isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the latest hedge fund action surrounding Acacia Communications, Inc. (NASDAQ:ACIA).
What have hedge funds been doing with Acacia Communications, Inc. (NASDAQ:ACIA)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACIA over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Acacia Communications, Inc. (NASDAQ:ACIA), with a stake worth $98.9 million reported as of the end of March. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $56.4 million. Two Sigma Advisors, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Since Acacia Communications, Inc. (NASDAQ:ACIA) has faced declining sentiment from hedge fund managers, it's safe to say that there is a sect of fund managers that elected to cut their full holdings by the end of the second quarter. Intriguingly, Steve Cohen's Point72 Asset Management dropped the largest investment of the "upper crust" of funds watched by Insider Monkey, comprising about $5.8 million in call options, and Frank Slattery's Symmetry Peak Management was right behind this move, as the fund dumped about $2.9 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Acacia Communications, Inc. (NASDAQ:ACIA). We will take a look at Groupon Inc (NASDAQ:GRPN), Acushnet Holdings Corp. (NYSE:GOLF), Hilltop Holdings Inc. (NYSE:HTH), and Retail Opportunity Investments Corp (NASDAQ:ROIC). All of these stocks' market caps are closest to ACIA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRPN,24,391895,-2 GOLF,11,22113,-2 HTH,18,107708,-1 ROIC,13,109601,5 Average,16.5,157829,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $296 million in ACIA's case. Groupon Inc (NASDAQ:GRPN) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Acacia Communications, Inc. (NASDAQ:ACIA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ACIA as the stock returned 38.7% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.