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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Concert Pharmaceuticals Inc (NASDAQ:CNCE) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Concert Pharmaceuticals Inc (NASDAQ:CNCE) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of March. At the end of this article we will also compare CNCE to other stocks including Whitestone REIT (NYSE:WSR), American National BankShares Inc (NASDAQ:AMNB), and Source Capital, Inc. (NYSE:SOR) to get a better sense of its popularity.
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To most traders, hedge funds are perceived as unimportant, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, We choose to focus on the upper echelon of this group, about 850 funds. These money managers shepherd bulk of all hedge funds' total capital, and by keeping an eye on their best stock picks, Insider Monkey has spotted many investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
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Peter Kolchinsky of RA Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the fresh hedge fund action surrounding Concert Pharmaceuticals Inc (NASDAQ:CNCE).
How are hedge funds trading Concert Pharmaceuticals Inc (NASDAQ:CNCE)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in CNCE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Perceptive Advisors held the most valuable stake in Concert Pharmaceuticals Inc (NASDAQ:CNCE), which was worth $19.5 million at the end of the third quarter. On the second spot was RA Capital Management which amassed $16.4 million worth of shares. Millennium Management, Sphera Global Healthcare Fund, and Renaissance Technologies 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 Sphera Global Healthcare Fund allocated the biggest weight to Concert Pharmaceuticals Inc (NASDAQ:CNCE), around 1.12% of its 13F portfolio. RA Capital Management is also relatively very bullish on the stock, designating 0.52 percent of its 13F equity portfolio to CNCE.
Judging by the fact that Concert Pharmaceuticals Inc (NASDAQ:CNCE) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds that slashed their full holdings in the first quarter. It's worth mentioning that Cliff Asness's AQR Capital Management said goodbye to the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $0.1 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also cut its stock, about $0 million worth. These bearish behaviors are interesting, as total 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 - not necessarily in the same industry as Concert Pharmaceuticals Inc (NASDAQ:CNCE) but similarly valued. We will take a look at Whitestone REIT (NYSE:WSR), American National BankShares Inc (NASDAQ:AMNB), Source Capital, Inc. (NYSE:SOR), and ACNB Corporation (NASDAQ:ACNB). This group of stocks' market caps are closest to CNCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WSR,5,14190,1 AMNB,3,5655,1 SOR,4,12484,2 ACNB,2,3264,1 Average,3.5,8898,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $68 million in CNCE's case. Whitestone REIT (NYSE:WSR) is the most popular stock in this table. On the other hand ACNB Corporation (NASDAQ:ACNB) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Concert Pharmaceuticals Inc (NASDAQ:CNCE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately CNCE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CNCE were disappointed as the stock returned 12.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.