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Did Hedge Funds Drop The Ball On Accelerate Diagnostics Inc (AXDX) ?

Reymerlyn Martin

"Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value," are the words of Maran Capital's Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Accelerate Diagnostics Inc (NASDAQ:AXDX) and see how it was affected.

Accelerate Diagnostics Inc (NASDAQ:AXDX) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that AXDX isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

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Let's take a look at the recent hedge fund action encompassing Accelerate Diagnostics Inc (NASDAQ:AXDX).

Hedge fund activity in Accelerate Diagnostics Inc (NASDAQ:AXDX)

At Q4's end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in AXDX a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AXDX_may2019

The largest stake in Accelerate Diagnostics Inc (NASDAQ:AXDX) was held by Birchview Capital, which reported holding $25.1 million worth of stock at the end of December. It was followed by Selkirk Management with a $4 million position. Other investors bullish on the company included Trellus Management Company, Citadel Investment Group, and D E Shaw.

Since Accelerate Diagnostics Inc (NASDAQ:AXDX) has witnessed declining sentiment from hedge fund managers, it's safe to say that there exists a select few money managers that elected to cut their full holdings in the third quarter. Intriguingly, Noam Gottesman's GLG Partners dropped the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $0.3 million in call options. Efrem Kamen's fund, Pura Vida Investments, also dumped its call options, about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Accelerate Diagnostics Inc (NASDAQ:AXDX). These stocks are Winmark Corporation (NASDAQ:WINA), Amalgamated Bank (NASDAQ:AMAL), Dime Community Bancshares, Inc. (NASDAQ:DCOM), and SpartanNash Company (NASDAQ:SPTN). All of these stocks' market caps resemble AXDX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WINA,8,85756,1 AMAL,6,71103,-3 DCOM,9,35352,-4 SPTN,16,39053,2 Average,9.75,57816,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $31 million in AXDX's case. SpartanNash Company (NASDAQ:SPTN) is the most popular stock in this table. On the other hand Amalgamated Bank (NASDAQ:AMAL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Accelerate Diagnostics Inc (NASDAQ:AXDX) is even less popular than AMAL. Hedge funds clearly dropped the ball on AXDX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on AXDX as the stock returned 58.7% and outperformed the market by an even larger margin.

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

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