World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Affimed NV (NASDAQ:AFMD) was in 10 hedge funds’ portfolios at the end of the third quarter of 2018. AFMD has experienced an increase in hedge fund interest in recent months. There were 8 hedge funds in our database with AFMD holdings at the end of the previous quarter. Our calculations also showed that AFMD isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a gander at the new hedge fund action encompassing Affimed NV (NASDAQ:AFMD).
Hedge fund activity in Affimed NV (NASDAQ:AFMD)
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AFMD over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Brookside Capital held the most valuable stake in Affimed NV (NASDAQ:AFMD), which was worth $14 million at the end of the third quarter. On the second spot was Millennium Management which amassed $12.7 million worth of shares. Moreover, Sio Capital, Eversept Partners, and OrbiMed Advisors were also bullish on Affimed NV (NASDAQ:AFMD), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Sio Capital, managed by Michael Castor, assembled the biggest position in Affimed NV (NASDAQ:AFMD). Sio Capital had $2.4 million invested in the company at the end of the quarter. Phil Frohlich’s Prescott Group Capital Management also initiated a $0.7 million position during the quarter. The only other fund with a brand new AFMD position is Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Affimed NV (NASDAQ:AFMD) but similarly valued. We will take a look at American Realty Investors, Inc. (NYSE:ARL), Pioneer High Income Trust (NYSE:PHT), Barnes & Noble Education Inc (NYSE:BNED), and J. Jill, Inc. (NYSE:JILL). All of these stocks’ market caps are similar to AFMD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARL | 1 | 670 | 0 |
| PHT | 1 | 93 | 0 |
| BNED | 15 | 46205 | 0 |
| JILL | 12 | 13187 | 4 |
| Average | 7.25 | 15039 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $34 million in AFMD’s case. Barnes & Noble Education Inc (NYSE:BNED) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Affimed NV (NASDAQ:AFMD) 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. In this regard BNED might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
