In this article you are going to find out whether hedge funds think Neptune Wellness Solutions Inc (NASDAQ:NEPT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Neptune Wellness Solutions Inc (NASDAQ:NEPT) shareholders have witnessed an increase in hedge fund sentiment of late. Neptune Wellness Solutions Inc (NASDAQ:NEPT) was in 5 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. There were 2 hedge funds in our database with NEPT holdings at the end of June. Our calculations also showed that NEPT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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.
Ray Dalio of Bridgewater Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a glance at the recent hedge fund action surrounding Neptune Wellness Solutions Inc (NASDAQ:NEPT).
Hedge fund activity in Neptune Wellness Solutions Inc (NASDAQ:NEPT)
At third quarter’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 150% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in NEPT a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Neptune Wellness Solutions Inc (NASDAQ:NEPT) was held by Perceptive Advisors, which reported holding $41 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $0.4 million position. Other investors bullish on the company included Citadel Investment Group, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Neptune Wellness Solutions Inc (NASDAQ:NEPT), around 0.6% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, dishing out 0.0012 percent of its 13F equity portfolio to NEPT.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Neptune Wellness Solutions Inc (NASDAQ:NEPT) headfirst. Renaissance Technologies, founded by Jim Simons, established the largest position in Neptune Wellness Solutions Inc (NASDAQ:NEPT). Renaissance Technologies had $0.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new NEPT position is Ray Dalio’s Bridgewater Associates.
Let’s also examine hedge fund activity in other stocks similar to Neptune Wellness Solutions Inc (NASDAQ:NEPT). These stocks are Xunlei Ltd (NASDAQ:XNET), DermTech, Inc. (NASDAQ:DMTK), Larimar Therapeutics, Inc. (NASDAQ:LRMR), Adicet Bio Inc. (NASDAQ:ACET), MediciNova, Inc. (NASDAQ:MNOV), Silicom Ltd. (NASDAQ:SILC), and Metropolitan Bank Holding Corp. (NYSE:MCB). This group of stocks’ market values match NEPT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XNET | 5 | 5302 | 0 |
| DMTK | 6 | 37635 | -1 |
| LRMR | 17 | 167530 | -1 |
| ACET | 7 | 89750 | 7 |
| MNOV | 5 | 2263 | 1 |
| SILC | 5 | 7269 | 0 |
| MCB | 7 | 41108 | 0 |
| Average | 7.4 | 50122 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.4 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $42 million in NEPT’s case. Larimar Therapeutics, Inc. (NASDAQ:LRMR) is the most popular stock in this table. On the other hand Xunlei Ltd (NASDAQ:XNET) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Neptune Wellness Solutions Inc (NASDAQ:NEPT) is even less popular than XNET. Our overall hedge fund sentiment score for NEPT is 24.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards NEPT. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately NEPT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NEPT investors were disappointed as the stock returned -15.6% since the end of the third quarter (through 11/27) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
