Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Athenex, Inc. (NASDAQ:ATNX) to find out whether it was one of their high conviction long-term ideas.
Is Athenex, Inc. (NASDAQ:ATNX) worth your attention right now? The best stock pickers are in a bullish mood. The number of bullish hedge fund positions rose by 3 lately. Our calculations also showed that atnx isn't among the 30 most popular stocks among hedge funds. ATNX was in 10 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 7 hedge funds in our database with ATNX positions at the end of the previous quarter.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a peek at the fresh hedge fund action surrounding Athenex, Inc. (NASDAQ:ATNX).
What have hedge funds been doing with Athenex, Inc. (NASDAQ:ATNX)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATNX over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Perceptive Advisors was the largest shareholder of Athenex, Inc. (NASDAQ:ATNX), with a stake worth $32.6 million reported as of the end of December. Trailing Perceptive Advisors was Deerfield Management, which amassed a stake valued at $7.8 million. Prince Street Capital Management, OrbiMed Advisors, and Diag Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Deerfield Management, managed by James E. Flynn, established the biggest position in Athenex, Inc. (NASDAQ:ATNX). Deerfield Management had $7.8 million invested in the company at the end of the quarter. David Lohman's Diag Capital also initiated a $5.4 million position during the quarter. The following funds were also among the new ATNX investors: Mark Kingdon's Kingdon Capital, Ori Hershkovitz's Nexthera Capital, and Ken Griffin's Citadel Investment Group.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Athenex, Inc. (NASDAQ:ATNX) but similarly valued. These stocks are Interface, Inc. (NASDAQ:TILE), TPI Composites, Inc. (NASDAQ:TPIC), Laredo Petroleum Inc (NYSE:LPI), and The Gorman-Rupp Company (NYSE:GRC). This group of stocks' market values resemble ATNX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TILE,16,59233,-1 TPIC,13,89898,-4 LPI,14,195611,-6 GRC,7,34299,-2 Average,12.5,94760,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $68 million in ATNX's case. Interface, Inc. (NASDAQ:TILE) is the most popular stock in this table. On the other hand The Gorman-Rupp Company (NYSE:GRC) is the least popular one with only 7 bullish hedge fund positions. Athenex, Inc. (NASDAQ:ATNX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ATNX wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); ATNX investors were disappointed as the stock returned -13.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.