It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in AxoGen, Inc. (NASDAQ:AXGN).
AxoGen, Inc. (NASDAQ:AXGN) has seen a decrease in support from the world's most elite money managers lately. AXGN was in 13 hedge funds' portfolios at the end of the third quarter of 2019. There were 15 hedge funds in our database with AXGN positions at the end of the previous quarter. Our calculations also showed that AXGN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
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James E. Flynn of Deerfield 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 go over the fresh hedge fund action surrounding AxoGen, Inc. (NASDAQ:AXGN).
Hedge fund activity in AxoGen, Inc. (NASDAQ:AXGN)
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AXGN over the last 17 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Deerfield Management was the largest shareholder of AxoGen, Inc. (NASDAQ:AXGN), with a stake worth $23 million reported as of the end of September. Trailing Deerfield Management was D E Shaw, which amassed a stake valued at $10.2 million. Opaleye Management, Millennium Management, and Intrinsic Edge Capital 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 Opaleye Management allocated the biggest weight to AxoGen, Inc. (NASDAQ:AXGN), around 3.03% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, earmarking 0.94 percent of its 13F equity portfolio to AXGN.
Judging by the fact that AxoGen, Inc. (NASDAQ:AXGN) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few money managers that slashed their entire stakes heading into Q4. It's worth mentioning that Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $12 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund said goodbye to about $11.8 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to AxoGen, Inc. (NASDAQ:AXGN). We will take a look at Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), Franklin Covey Co. (NYSE:FC), Ducommun Incorporated (NYSE:DCO), and Century Bancorp, Inc. (NASDAQ:CNBKA). All of these stocks' market caps resemble AXGN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AUPH,13,87865,2 FC,10,21669,3 DCO,12,63714,1 CNBKA,5,17664,2 Average,10,47728,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $62 million in AXGN's case. Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 5 bullish hedge fund positions. AxoGen, Inc. (NASDAQ:AXGN) 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 AXGN as the stock returned 38.9% 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.