Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Acceleron Pharma Inc (NASDAQ:XLRN) was in 23 hedge funds’ portfolios at the end of the third quarter of 2019. XLRN has seen an increase in hedge fund sentiment in recent months. There were 21 hedge funds in our database with XLRN holdings at the end of the previous quarter. Our calculations also showed that XLRN 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
James E. Flynn of Deerfield Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action surrounding Acceleron Pharma Inc (NASDAQ:XLRN).
What have hedge funds been doing with Acceleron Pharma Inc (NASDAQ:XLRN)?
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in XLRN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Farallon Capital held the most valuable stake in Acceleron Pharma Inc (NASDAQ:XLRN), which was worth $94.8 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $57.5 million worth of shares. Deerfield Management, Alkeon 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 Great Point Partners allocated the biggest weight to Acceleron Pharma Inc (NASDAQ:XLRN), around 5.28% of its portfolio. Foresite Capital is also relatively very bullish on the stock, earmarking 3.85 percent of its 13F equity portfolio to XLRN.
As aggregate interest increased, some big names were leading the bulls’ herd. Hudson Bay Capital Management, managed by Sander Gerber, established the largest call position in Acceleron Pharma Inc (NASDAQ:XLRN). Hudson Bay Capital Management had $1.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Noam Gottesman’s GLG Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Acceleron Pharma Inc (NASDAQ:XLRN) but similarly valued. These stocks are Retail Opportunity Investments Corp (NASDAQ:ROIC), Dana Incorporated (NYSE:DAN), Ambarella Inc (NASDAQ:AMBA), and ESCO Technologies Inc. (NYSE:ESE). All of these stocks’ market caps are similar to XLRN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROIC | 18 | 77228 | 5 |
| DAN | 25 | 192399 | 0 |
| AMBA | 28 | 255178 | 7 |
| ESE | 8 | 3101 | 4 |
| Average | 19.75 | 131977 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $322 million in XLRN’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand ESCO Technologies Inc. (NYSE:ESE) is the least popular one with only 8 bullish hedge fund positions. Acceleron Pharma Inc (NASDAQ:XLRN) is not the most popular stock in this group but hedge fund interest is still above average. 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 XLRN as the stock returned 23.9% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
