It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Minerva Neurosciences, Inc (NASDAQ:NERV).
Minerva Neurosciences, Inc (NASDAQ:NERV) has seen an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that NERV 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.
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.
Israel Englander of Millennium Management
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 check out the fresh hedge fund action surrounding Minerva Neurosciences, Inc (NASDAQ:NERV).
What have hedge funds been doing with Minerva Neurosciences, Inc (NASDAQ:NERV)?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in NERV a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, James Dondero’s Highland Capital Management has the largest position in Minerva Neurosciences, Inc (NASDAQ:NERV), worth close to $6.1 million, amounting to 0.4% of its total 13F portfolio. On Highland Capital Management’s heels is Renaissance Technologies which holds a $5.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain Israel Englander’s Millennium Management, Bihua Chen’s Cormorant Asset Management and Thomas E. Claugus’s GMT Capital. In terms of the portfolio weights assigned to each position Highland Capital Management allocated the biggest weight to Minerva Neurosciences, Inc (NASDAQ:NERV), around 0.38% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to NERV.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, initiated the largest position in Minerva Neurosciences, Inc (NASDAQ:NERV). Point72 Asset Management had $1.3 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks similar to Minerva Neurosciences, Inc (NASDAQ:NERV). These stocks are Southern First Bancshares, Inc. (NASDAQ:SFST), Alphatec Holdings Inc (NASDAQ:ATEC), Alpha and Omega Semiconductor Limited (NASDAQ:AOSL), and Alerus Financial Corporation (NASDAQ:ALRS). This group of stocks’ market valuations are similar to NERV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SFST | 5 | 33274 | -2 |
| ATEC | 8 | 34122 | 3 |
| AOSL | 14 | 45381 | 4 |
| ALRS | 3 | 6849 | 3 |
| Average | 7.5 | 29907 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $29 million in NERV’s case. Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) is the most popular stock in this table. On the other hand Alerus Financial Corporation (NASDAQ:ALRS) is the least popular one with only 3 bullish hedge fund positions. Minerva Neurosciences, Inc (NASDAQ:NERV) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NERV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NERV were disappointed as the stock returned -19.4% during the fourth quarter (through the end of November) and underperformed 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.
Disclosure: None. This article was originally published at Insider Monkey.
