2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Alkermes Plc (NASDAQ:ALKS) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Alkermes Plc (NASDAQ:ALKS) investors should be aware of an increase in support from the world’s most elite money managers lately. Our calculations also showed that ALKS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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.
Kevin Kotler of Broadfin Capital
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a look at the key hedge fund action encompassing Alkermes Plc (NASDAQ:ALKS).
What have hedge funds been doing with Alkermes Plc (NASDAQ:ALKS)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALKS over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Alkermes Plc (NASDAQ:ALKS), which was worth $95.6 million at the end of the third quarter. On the second spot was Camber Capital Management which amassed $68.3 million worth of shares. Millennium Management, AQR Capital Management, and Citadel Investment Group 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 Camber Capital Management allocated the biggest weight to Alkermes Plc (NASDAQ:ALKS), around 3.59% of its 13F portfolio. Broadfin Capital is also relatively very bullish on the stock, setting aside 0.9 percent of its 13F equity portfolio to ALKS.
Consequently, specific money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the largest position in Alkermes Plc (NASDAQ:ALKS). Alyeska Investment Group had $19.3 million invested in the company at the end of the quarter. Kevin Kotler’s Broadfin Capital also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new ALKS investors: Israel Englander’s Millennium Management, Donald Sussman’s Paloma Partners, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s also examine hedge fund activity in other stocks similar to Alkermes Plc (NASDAQ:ALKS). These stocks are Lithia Motors Inc (NYSE:LAD), Grocery Outlet Holding Corp. (NASDAQ:GO), Mirati Therapeutics, Inc. (NASDAQ:MRTX), and Atlantic Union Bankshares Corporation (NASDAQ:AUB). This group of stocks’ market values are closest to ALKS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LAD | 24 | 628887 | 3 |
| GO | 15 | 63095 | -6 |
| MRTX | 33 | 1154565 | 6 |
| AUB | 3 | 19925 | 0 |
| Average | 18.75 | 466618 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $361 million in ALKS’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Atlantic Union Bankshares Corporation (NASDAQ:AUB) is the least popular one with only 3 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ALKS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALKS were disappointed as the stock returned -30.9% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
