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Is SCYNEXIS Inc (NASDAQ:SCYX) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
SCYNEXIS Inc (NASDAQ:SCYX) investors should pay attention to an increase in hedge fund sentiment of late. Our calculations also showed that SCYX 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.
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 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.
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Nathan Fischel of DAFNA Capital Management[/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 let's analyze the fresh hedge fund action encompassing SCYNEXIS Inc (NASDAQ:SCYX).
How are hedge funds trading SCYNEXIS Inc (NASDAQ:SCYX)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the second quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in SCYX a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, DAFNA Capital Management held the most valuable stake in SCYNEXIS Inc (NASDAQ:SCYX), which was worth $1.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.5 million worth of shares. Puissance Capital Management, Bailard Inc, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Puissance Capital Management allocated the biggest weight to SCYNEXIS Inc (NASDAQ:SCYX), around 0.9% of its 13F portfolio. DAFNA Capital Management is also relatively very bullish on the stock, dishing out 0.51 percent of its 13F equity portfolio to SCYX.
Consequently, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most outsized position in SCYNEXIS Inc (NASDAQ:SCYX). Millennium Management had $0.1 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0 million position during the quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SCYNEXIS Inc (NASDAQ:SCYX) but similarly valued. These stocks are NewLink Genetics Corp (NASDAQ:NLNK), Catalyst Biosciences Inc (NASDAQ:CBIO), AGBA Acquisition Limited (NASDAQ:AGBA), and Pluristem Therapeutics Inc. (NASDAQ:PSTI). This group of stocks' market values are similar to SCYX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLNK,6,6218,1 CBIO,11,18597,0 AGBA,3,4291,3 PSTI,3,868,1 Average,5.75,7494,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $2 million in SCYX's case. Catalyst Biosciences Inc (NASDAQ:CBIO) is the most popular stock in this table. On the other hand AGBA Acquisition Limited (NASDAQ:AGBA) is the least popular one with only 3 bullish hedge fund positions. SCYNEXIS Inc (NASDAQ:SCYX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately SCYX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SCYX were disappointed as the stock returned 1.4% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.