Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. 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 increasing their overall exposure in the third quarter 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 Concert Pharmaceuticals Inc (NASDAQ:CNCE).
Concert Pharmaceuticals Inc (NASDAQ:CNCE) was in 12 hedge funds’ portfolios at the end of September. CNCE shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. There were 13 hedge funds in our database with CNCE positions at the end of the previous quarter. Our calculations also showed that CNCE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the new hedge fund action surrounding Concert Pharmaceuticals Inc (NASDAQ:CNCE).
Hedge fund activity in Concert Pharmaceuticals Inc (NASDAQ:CNCE)
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CNCE over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Perceptive Advisors held the most valuable stake in Concert Pharmaceuticals Inc (NASDAQ:CNCE), which was worth $12.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.6 million worth of shares. Millennium Management, Citadel Investment Group, 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 Perceptive Advisors allocated the biggest weight to Concert Pharmaceuticals Inc (NASDAQ:CNCE), around 0.35% of its 13F portfolio. Ellington is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to CNCE.
Since Concert Pharmaceuticals Inc (NASDAQ:CNCE) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Mark Lampert’s Biotechnology Value Fund said goodbye to the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $19.5 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also sold off its stock, about $3.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Concert Pharmaceuticals Inc (NASDAQ:CNCE) but similarly valued. We will take a look at Pioneer Bancorp, Inc. (NASDAQ:PBFS), CSI Compressco LP (NASDAQ:CCLP), Universal Technical Institute, Inc. (NYSE:UTI), and Danaos Corporation (NYSE:DAC). This group of stocks’ market valuations resemble CNCE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PBFS | 6 | 4932 | 6 |
| CCLP | 3 | 1881 | -1 |
| UTI | 7 | 42341 | 2 |
| DAC | 1 | 554 | 0 |
| Average | 4.25 | 12427 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $21 million in CNCE’s case. Universal Technical Institute, Inc. (NYSE:UTI) is the most popular stock in this table. On the other hand Danaos Corporation (NYSE:DAC) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Concert Pharmaceuticals Inc (NASDAQ:CNCE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CNCE as the stock returned 28.2% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
