Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Alkermes Plc (NASDAQ:ALKS).
Is Alkermes Plc (NASDAQ:ALKS) an exceptional investment today? Money managers are in a pessimistic mood. The number of long hedge fund positions dropped by 1 in recent months. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds. ALKS was in 16 hedge funds’ portfolios at the end of the third quarter of 2018. There were 17 hedge funds in our database with ALKS positions at the end of the previous quarter.
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.
We’re going to go over the latest hedge fund action regarding Alkermes Plc (NASDAQ:ALKS).
Hedge fund activity in Alkermes Plc (NASDAQ:ALKS)
Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALKS over the last 13 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Woodford Investment Management, managed by Neil Woodford, holds the biggest position in Alkermes Plc (NASDAQ:ALKS). Woodford Investment Management has a $112.9 million position in the stock, comprising 9% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $12.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Israel Englander’s Millennium Management, Samuel Isaly’s OrbiMed Advisors and D. E. Shaw’s D E Shaw.
Due to the fact that Alkermes Plc (NASDAQ:ALKS) has experienced a decline in interest from hedge fund managers, we can see that there is a sect of hedgies that elected to cut their positions entirely heading into Q3. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling close to $7.2 million in call options. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also dropped its call options, about $1.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Alkermes Plc (NASDAQ:ALKS). These stocks are Aqua America Inc (NYSE:WTR), Jones Lang LaSalle Inc (NYSE:JLL), Omega Healthcare Investors Inc (NYSE:OHI), and Western Gas Equity Partners LP (NYSE:WGP). This group of stocks’ market values resemble ALKS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WTR | 13 | 132708 | 0 |
| JLL | 21 | 858022 | 3 |
| OHI | 12 | 41625 | 2 |
| WGP | 5 | 60856 | 1 |
| Average | 12.75 | 273303 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $160 million in ALKS’s case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand Western Gas Equity Partners LP (NYSE:WGP) is the least popular one with only 5 bullish hedge fund positions. Alkermes Plc (NASDAQ:ALKS) 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 JLL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
