How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Acorda Therapeutics Inc (NASDAQ:ACOR) and determine whether hedge funds had an edge regarding this stock.
Is Acorda Therapeutics Inc (NASDAQ:ACOR) the right investment to pursue these days? The smart money was in a pessimistic mood. The number of long hedge fund bets fell by 4 lately. Our calculations also showed that ACOR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Michael Platt of BlueCrest Capital Mgmt.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action regarding Acorda Therapeutics Inc (NASDAQ:ACOR).
How are hedge funds trading Acorda Therapeutics Inc (NASDAQ:ACOR)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in ACOR a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Acorda Therapeutics Inc (NASDAQ:ACOR), which was worth $3.6 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $1.5 million worth of shares. Partner Fund Management, AQR Capital Management, and Two Sigma Advisors 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 Partner Fund Management allocated the biggest weight to Acorda Therapeutics Inc (NASDAQ:ACOR), around 0.12% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to ACOR.
Since Acorda Therapeutics Inc (NASDAQ:ACOR) has experienced a decline in interest from the smart money, we can see that there is a sect of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Ken Griffin’s Citadel Investment Group sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $3.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Acorda Therapeutics Inc (NASDAQ:ACOR) but similarly valued. We will take a look at AmeriServ Financial, Inc. (NASDAQ:ASRV), Travelzoo (NASDAQ:TZOO), Infrastructure and Energy Alternatives, Inc. (NASDAQ:IEA), and KBL Merger Corp. IV (NASDAQ:KBLM). All of these stocks’ market caps match ACOR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASRV | 3 | 4218 | -1 |
| TZOO | 11 | 5687 | 3 |
| IEA | 6 | 2546 | 0 |
| KBLM | 4 | 368 | 0 |
| Average | 6 | 3205 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $8 million in ACOR’s case. Travelzoo (NASDAQ:TZOO) is the most popular stock in this table. On the other hand AmeriServ Financial, Inc. (NASDAQ:ASRV) is the least popular one with only 3 bullish hedge fund positions. Acorda Therapeutics Inc (NASDAQ:ACOR) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately ACOR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ACOR were disappointed as the stock returned -21.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Acorda Therapeutics Inc. (NASDAQ:ACOR)
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Disclosure: None. This article was originally published at Insider Monkey.
