We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Acorda Therapeutics Inc (NASDAQ:ACOR).
Acorda Therapeutics Inc (NASDAQ:ACOR) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. ACOR shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. There were 22 hedge funds in our database with ACOR positions at the end of the previous quarter. Our calculations also showed that ACOR isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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 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 our short portfolio.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let's view the recent hedge fund action regarding Acorda Therapeutics Inc (NASDAQ:ACOR).
Hedge fund activity in Acorda Therapeutics Inc (NASDAQ:ACOR)
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in ACOR 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.
The largest stake in Acorda Therapeutics Inc (NASDAQ:ACOR) was held by Renaissance Technologies, which reported holding $35 million worth of stock at the end of March. It was followed by Scopia Capital with a $25.5 million position. Other investors bullish on the company included Baker Bros. Advisors, Perceptive Advisors, and Diamond Hill Capital.
Since Acorda Therapeutics Inc (NASDAQ:ACOR) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedgies that slashed their full holdings in the second quarter. Intriguingly, James A. Silverman's Opaleye Management cut the largest position of the 750 funds monitored by Insider Monkey, worth close to $3.5 million in stock. Ori Hershkovitz's fund, Nexthera Capital, also dumped its stock, about $2.1 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Acorda Therapeutics Inc (NASDAQ:ACOR). These stocks are Metropolitan Bank Holding Corp. (NYSE:MCB), NACCO Industries, Inc. (NYSE:NC), resTORbio, Inc. (NASDAQ:TORC), and Enterprise Bancorp, Inc (NASDAQ:EBTC). This group of stocks' market caps are similar to ACOR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCB,6,62855,-2 NC,9,17991,0 TORC,3,60634,-3 EBTC,1,1498,0 Average,4.75,35745,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $108 million in ACOR's case. NACCO Industries, Inc. (NYSE:NC) is the most popular stock in this table. On the other hand Enterprise Bancorp, Inc (NASDAQ:EBTC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Acorda Therapeutics Inc (NASDAQ:ACOR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ACOR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ACOR were disappointed as the stock returned -62.6% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.