Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like AC Immune SA (NASDAQ:ACIU).
AC Immune SA (NASDAQ:ACIU) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of September. At the end of this article we will also compare ACIU to other stocks including BioLife Solutions, Inc. (NASDAQ:BLFS), Cyclerion Therapeutics, Inc. (NASDAQ:CYCN), and Daktronics, Inc. (NASDAQ:DAKT) 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. We're going to go over the recent hedge fund action regarding AC Immune SA (NASDAQ:ACIU).
What does smart money think about AC Immune SA (NASDAQ:ACIU)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ACIU over the last 17 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Biotechnology Value Fund was the largest shareholder of AC Immune SA (NASDAQ:ACIU), with a stake worth $55.9 million reported as of the end of September. Trailing Biotechnology Value Fund was Prosight Capital, which amassed a stake valued at $6.2 million. Renaissance Technologies, Millennium Management, and Citadel Investment Group 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 Biotechnology Value Fund allocated the biggest weight to AC Immune SA (NASDAQ:ACIU), around 5.88% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to ACIU.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now take a look at hedge fund activity in other stocks similar to AC Immune SA (NASDAQ:ACIU). We will take a look at BioLife Solutions, Inc. (NASDAQ:BLFS), Cyclerion Therapeutics, Inc. (NASDAQ:CYCN), Daktronics, Inc. (NASDAQ:DAKT), and Rafael Holdings, Inc. (NYSE:RFL). This group of stocks' market caps are closest to ACIU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLFS,11,81791,-2 CYCN,14,79668,-3 DAKT,14,22464,5 RFL,6,40913,0 Average,11.25,56209,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $66 million in ACIU's case. Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) is the most popular stock in this table. On the other hand Rafael Holdings, Inc. (NYSE:RFL) is the least popular one with only 6 bullish hedge fund positions. AC Immune SA (NASDAQ:ACIU) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on ACIU as the stock returned 61.6% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.