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 (Recession is Imminent: We Need A Travel Ban NOW). 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 ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) shareholders have witnessed a decrease in hedge fund sentiment recently. ACAD was in 28 hedge funds' portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with ACAD positions at the end of the previous quarter. Our calculations also showed that ACAD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
[caption id="attachment_338175" align="aligncenter" width="393"] Felix Baker of Baker Bros.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the recent hedge fund action surrounding ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
Hedge fund activity in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)
At Q1's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ACAD a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the number one position in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). Baker Bros. Advisors has a $1.7705 billion position in the stock, comprising 10.9% of its 13F portfolio. On Baker Bros. Advisors's heels is Citadel Investment Group, managed by Ken Griffin, which holds a $156.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism include Arthur B Cohen and Joseph Healey's Healthcor Management LP, Jeffrey Jay and David Kroin's Great Point Partners and William Leland Edwards's Palo Alto Investors. In terms of the portfolio weights assigned to each position Baker Bros. Advisors allocated the biggest weight to ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), around 10.9% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, earmarking 8.81 percent of its 13F equity portfolio to ACAD.
Seeing as ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few fund managers that slashed their entire stakes last quarter. At the top of the heap, Steve Cohen's Point72 Asset Management cut the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $28.7 million in stock. Louis Bacon's fund, Moore Global Investments, also cut its stock, about $8.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) but similarly valued. We will take a look at Perrigo Company plc (NYSE:PRGO), ABIOMED, Inc. (NASDAQ:ABMD), Zynga Inc (NASDAQ:ZNGA), and F5 Networks, Inc. (NASDAQ:FFIV). All of these stocks' market caps are closest to ACAD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRGO,28,463596,1 ABMD,27,522802,-8 ZNGA,59,1015313,11 FFIV,32,940064,3 Average,36.5,735444,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $735 million. That figure was $2404 million in ACAD's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand ABIOMED, Inc. (NASDAQ:ABMD) is the least popular one with only 27 bullish hedge fund positions. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately ACAD wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ACAD investors were disappointed as the stock returned 17.6% 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.
Disclosure: None. This article was originally published at Insider Monkey.