How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Akcea Therapeutics, Inc. (NASDAQ:AKCA).
Akcea Therapeutics, Inc. (NASDAQ:AKCA) was in 4 hedge funds' portfolios at the end of the third quarter of 2019. AKCA shareholders have witnessed a decrease in hedge fund sentiment lately. There were 8 hedge funds in our database with AKCA holdings at the end of the previous quarter. Our calculations also showed that AKCA 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_365194" align="alignnone" width="600"]
David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to review the latest hedge fund action surrounding Akcea Therapeutics, Inc. (NASDAQ:AKCA).
How have hedgies been trading Akcea Therapeutics, Inc. (NASDAQ:AKCA)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AKCA over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Sculptor Capital, holds the largest position in Akcea Therapeutics, Inc. (NASDAQ:AKCA). Sculptor Capital has a $2.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is David E. Shaw of D E Shaw, with a $0.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish comprise Paul Tudor Jones's Tudor Investment Corp, Ken Griffin's Citadel Investment Group and . In terms of the portfolio weights assigned to each position Sculptor Capital allocated the biggest weight to Akcea Therapeutics, Inc. (NASDAQ:AKCA), around 0.03% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to AKCA.
Because Akcea Therapeutics, Inc. (NASDAQ:AKCA) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers who were dropping their full holdings heading into Q4. At the top of the heap, Sander Gerber's Hudson Bay Capital Management said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $1.9 million in stock. Cliff Asness's fund, AQR Capital Management, also sold off its stock, about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Akcea Therapeutics, Inc. (NASDAQ:AKCA) but similarly valued. These stocks are Kronos Worldwide, Inc. (NYSE:KRO), Sonos, Inc. (NASDAQ:SONO), Liberty Media Corporation (NASDAQ:BATRA), and New York Mortgage Trust, Inc. (NASDAQ:NYMT). All of these stocks' market caps match AKCA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRO,9,32162,-3 SONO,27,100751,6 BATRA,9,68616,0 NYMT,10,25762,0 Average,13.75,56823,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $5 million in AKCA's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand Kronos Worldwide, Inc. (NYSE:KRO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Akcea Therapeutics, Inc. (NASDAQ:AKCA) is even less popular than KRO. Hedge funds clearly dropped the ball on AKCA as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on AKCA as the stock returned 26.5% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.