Do Hedge Funds Love Merrimack Pharmaceuticals Inc (MACK)?

Hedge funds are not perfect. They have their bad picks just like everyone else. Micron, a stock hedge funds have loved, lost 50% during the last 12 months ending in October 30. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% in the same time period, vs. a gain of 5.2% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Merrimack Pharmaceuticals Inc (NASDAQ:MACK).

During the third quarter, Merrimack Pharmaceuticals’ stock lost 28%, which has led to investors heading for the exits. In this way, the number of long hedge fund positions retreated by 3 recently. At the end of this article we will also compare MACK to other stocks, including Videocon d2h Ltd – ADR (NASDAQ:VDTH), Capstead Mortgage Corporation (NYSE:CMO), and US Ecology Inc. (NASDAQ:ECOL) to get a better sense of its popularity.

Today there are dozens of metrics shareholders use to assess their holdings. Some of the less known metrics are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best fund managers can outpace their index-focused peers by a significant amount (see the details here).

Now, we’re going to analyze the latest action surrounding Merrimack Pharmaceuticals Inc (NASDAQ:MACK).

What does the smart money think about Merrimack Pharmaceuticals Inc (NASDAQ:MACK)?

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 decline 23% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the largest position in Merrimack Pharmaceuticals Inc (NASDAQ:MACK), worth close to $5.3 million, corresponding to less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Portolan Capital Management, managed by George McCabe, which holds a $3.8 million position; 0.5% of its 13F portfolio is allocated to the company. Other peers that are bullish include Paul Marshall and Ian Wace’s Marshall Wace LLP, William Michaelcheck’s Mariner Investment Group, and Cliff Asness’ AQR Capital Management.

Because Merrimack Pharmaceuticals Inc (NASDAQ:MACK) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds that decided to sell off their full holdings last quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $14.9 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $3.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Merrimack Pharmaceuticals Inc (NASDAQ:MACK) but similarly valued. We will take a look at Videocon d2h Ltd – ADR (NASDAQ:VDTH), Capstead Mortgage Corporation (NYSE:CMO), US Ecology Inc. (NASDAQ:ECOL), and Callidus Software Inc. (NASDAQ:CALD). This group of stocks’ market valuations are similar to MACK’s market valuation.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $15 million in MACK’s case. Videocon d2h Ltd – ADR (NASDAQ:VDTH) and Callidus Software Inc. (NASDAQ:CALD) are the most popular stocks in this table. On the other hand Capstead Mortgage Corporation (NYSE:CMO) is the least popular one with only 7 bullish hedge fund positions. Merrimack Pharmaceuticals Inc (NASDAQ:MACK) 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. In this regard VDTH might be a better candidate to consider a long position.