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 Veru Inc. (NASDAQ:VERU).
Veru Inc. (NASDAQ:VERU) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that VERU 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.
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 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. 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind we’re going to check out the new hedge fund action regarding Veru Inc. (NASDAQ:VERU).
How are hedge funds trading Veru Inc. (NASDAQ:VERU)?
Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VERU over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Joseph Edelman’s Perceptive Advisors has the largest position in Veru Inc. (NASDAQ:VERU), worth close to $3.6 million, amounting to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $0.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise Michael Gelband’s ExodusPoint Capital, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Veru Inc. (NASDAQ:VERU), around 0.1% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, setting aside 0.0018 percent of its 13F equity portfolio to VERU.
As one would reasonably expect, key money managers were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, initiated the most valuable position in Veru Inc. (NASDAQ:VERU). ExodusPoint Capital had $0.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Veru Inc. (NASDAQ:VERU) but similarly valued. These stocks are Pixelworks, Inc. (NASDAQ:PXLW), Concert Pharmaceuticals Inc (NASDAQ:CNCE), Pioneer Bancorp, Inc. (NASDAQ:PBFS), and CSI Compressco LP (NASDAQ:CCLP). This group of stocks’ market caps are similar to VERU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PXLW | 9 | 7038 | 2 |
| CNCE | 12 | 21376 | -1 |
| PBFS | 6 | 4932 | 6 |
| CCLP | 3 | 1881 | -1 |
| Average | 7.5 | 8807 | 1.5 |
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 $9 million. That figure was $5 million in VERU’s case. Concert Pharmaceuticals Inc (NASDAQ:CNCE) is the most popular stock in this table. On the other hand CSI Compressco LP (NASDAQ:CCLP) is the least popular one with only 3 bullish hedge fund positions. Veru Inc. (NASDAQ:VERU) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 VERU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VERU investors were disappointed as the stock returned -1.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.