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The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) and find out how it is affected by hedge funds' moves.
Is ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) a good stock to buy now? The best stock pickers are getting more bullish. The number of long hedge fund positions went up by 5 recently. Our calculations also showed that ACAD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ACAD was in 26 hedge funds' portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with ACAD positions at the end of the previous quarter.
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.
[caption id="attachment_338175" align="aligncenter" width="500"]
Felix Baker of Baker Bros.[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the latest hedge fund action regarding ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD).
How have hedgies been trading ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)?
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in ACAD a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) was held by Baker Bros. Advisors, which reported holding $1470.4 million worth of stock at the end of September. It was followed by D E Shaw with a $81.8 million position. Other investors bullish on the company included Great Point Partners, Palo Alto Investors, and Citadel Investment Group. 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% of its portfolio. Great Point Partners is also relatively very bullish on the stock, earmarking 7.24 percent of its 13F equity portfolio to ACAD.
As aggregate interest increased, key hedge funds were breaking ground themselves. Farallon Capital, assembled the most outsized position in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). Farallon Capital had $12.6 million invested in the company at the end of the quarter. Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management also made a $6.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Renaissance Technologies, and Sander Gerber's Hudson Bay Capital Management.
Let's now review 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 Kemper Corporation (NYSE:KMPR), Manhattan Associates, Inc. (NASDAQ:MANH), Berry Global Group Inc (NYSE:BERY), and Oshkosh Corporation (NYSE:OSK). All of these stocks' market caps match ACAD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMPR,19,154935,0 MANH,22,440000,5 BERY,39,1571093,-1 OSK,22,434865,-2 Average,25.5,650223,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $650 million. That figure was $1911 million in ACAD's case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 19 bullish hedge fund positions. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) 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 ACAD as the stock returned 25.8% 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.
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