Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Athersys, Inc. (NASDAQ:ATHX) ready to rally soon? Prominent investors are in a bearish mood. The number of bullish hedge fund positions retreated by 1 recently. Our calculations also showed that ATHX 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's view the new hedge fund action surrounding Athersys, Inc. (NASDAQ:ATHX).
How have hedgies been trading Athersys, Inc. (NASDAQ:ATHX)?
At Q2's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in ATHX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Athersys, Inc. (NASDAQ:ATHX), which was worth $1.7 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $0.1 million worth of shares. Moreover, Ancora Advisors, Two Sigma Advisors, and AQR Capital Management were also bullish on Athersys, Inc. (NASDAQ:ATHX), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ATHX as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to Athersys, Inc. (NASDAQ:ATHX). These stocks are Northrim BanCorp, Inc. (NASDAQ:NRIM), Misonix, Inc. (NASDAQ:MSON), Adesto Technologies Corporation (NASDAQ:IOTS), and Syndax Pharmaceuticals, Inc. (NASDAQ:SNDX). This group of stocks' market caps match ATHX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NRIM,8,24576,1 MSON,3,8475,-1 IOTS,8,40044,1 SNDX,8,51836,1 Average,6.75,31233,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $2 million in ATHX's case. Northrim BanCorp, Inc. (NASDAQ:NRIM) is the most popular stock in this table. On the other hand Misonix, Inc. (NASDAQ:MSON) is the least popular one with only 3 bullish hedge fund positions. Athersys, Inc. (NASDAQ:ATHX) 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 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 ATHX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ATHX investors were disappointed as the stock returned -20.8% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.