We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Acacia Communications, Inc. (NASDAQ:ACIA) based on that data.
Acacia Communications, Inc. (NASDAQ:ACIA) was in 31 hedge funds’ portfolios at the end of December. ACIA investors should be aware of an increase in enthusiasm from smart money of late. There were 27 hedge funds in our database with ACIA positions at the end of the previous quarter. Our calculations also showed that ACIA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Matthew Halbower of Pentwater Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the new hedge fund action surrounding Acacia Communications, Inc. (NASDAQ:ACIA).
How are hedge funds trading Acacia Communications, Inc. (NASDAQ:ACIA)?
Heading into the first quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the third quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in ACIA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Acacia Communications, Inc. (NASDAQ:ACIA) was held by Magnetar Capital, which reported holding $128.5 million worth of stock at the end of September. It was followed by Alpine Associates with a $108 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Pentwater Capital Management. In terms of the portfolio weights assigned to each position One68 Global Capital allocated the biggest weight to Acacia Communications, Inc. (NASDAQ:ACIA), around 14.03% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, setting aside 3.44 percent of its 13F equity portfolio to ACIA.
Now, key hedge funds have been driving this bullishness. Pentwater Capital Management, managed by Matthew Halbower, established the most outsized position in Acacia Communications, Inc. (NASDAQ:ACIA). Pentwater Capital Management had $47.9 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $15.1 million position during the quarter. The following funds were also among the new ACIA investors: David Nguyen and Nancy Oh’s One68 Global Capital, Matthew Tewksbury’s Stevens Capital Management, and 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 Acacia Communications, Inc. (NASDAQ:ACIA) but similarly valued. We will take a look at Zai Lab Limited (NASDAQ:ZLAB), Sensient Technologies Corporation (NYSE:SXT), Piedmont Office Realty Trust, Inc. (NYSE:PDM), and EQT Corporation (NYSE:EQT). This group of stocks’ market caps are closest to ACIA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZLAB | 26 | 350732 | 5 |
| SXT | 20 | 56525 | 3 |
| PDM | 11 | 97488 | 2 |
| EQT | 29 | 368457 | -7 |
| Average | 21.5 | 218301 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $644 million in ACIA’s case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand Piedmont Office Realty Trust, Inc. (NYSE:PDM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Acacia Communications, Inc. (NASDAQ:ACIA) is more popular among hedge funds. 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. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on ACIA as the stock returned -2.1% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
