U.S. Markets closed

Hedge Funds Have Never Been This Bullish On Axsome Therapeutics, Inc. (AXSM)

Abigail Fisher

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

Axsome Therapeutics, Inc. (NASDAQ:AXSM) has experienced an increase in hedge fund interest recently. AXSM was in 14 hedge funds' portfolios at the end of March. There were 6 hedge funds in our database with AXSM positions at the end of the previous quarter. Our calculations also showed that AXSM 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Kolchinsky

We're going to take a look at the key hedge fund action regarding Axsome Therapeutics, Inc. (NASDAQ:AXSM).

How are hedge funds trading Axsome Therapeutics, Inc. (NASDAQ:AXSM)?

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 133% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AXSM over the last 15 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

AXSM_june2019

Of the funds tracked by Insider Monkey, Peter Kolchinsky's RA Capital Management has the biggest position in Axsome Therapeutics, Inc. (NASDAQ:AXSM), worth close to $46.9 million, comprising 2% of its total 13F portfolio. On RA Capital Management's heels is Baker Bros. Advisors, led by Julian Baker and Felix Baker, holding a $17.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism encompass Israel Englander's Millennium Management, Ken Greenberg and David Kim's Ghost Tree Capital and Benjamin A. Smith's Laurion Capital Management.

Consequently, key money managers have been driving this bullishness. RA Capital Management, managed by Peter Kolchinsky, established the most valuable position in Axsome Therapeutics, Inc. (NASDAQ:AXSM). RA Capital Management had $46.9 million invested in the company at the end of the quarter. Julian Baker and Felix Baker's Baker Bros. Advisors also made a $17.1 million investment in the stock during the quarter. The other funds with brand new AXSM positions are Ken Greenberg and David Kim's Ghost Tree Capital, Benjamin A. Smith's Laurion Capital Management, and Efrem Kamen's Pura Vida Investments.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Axsome Therapeutics, Inc. (NASDAQ:AXSM) but similarly valued. These stocks are Mitek Systems, Inc. (NASDAQ:MITK), NVE Corporation (NASDAQ:NVEC), Flexion Therapeutics Inc (NASDAQ:FLXN), and FRP Holdings Inc (NASDAQ:FRPH). This group of stocks' market values match AXSM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MITK,21,56038,6 NVEC,4,14236,0 FLXN,15,48039,1 FRPH,8,43576,1 Average,12,40472,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $93 million in AXSM's case. Mitek Systems, Inc. (NASDAQ:MITK) is the most popular stock in this table. On the other hand NVE Corporation (NASDAQ:NVEC) is the least popular one with only 4 bullish hedge fund positions. Axsome Therapeutics, Inc. (NASDAQ:AXSM) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on AXSM as the stock returned 74.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

Related Content