Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Ampio Pharmaceuticals, Inc. (NYSE:AMPE).
Is Ampio Pharmaceuticals, Inc. (NYSE:AMPE) the right pick for your portfolio? The smart money is taking a pessimistic view. The number of long hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that AMPE 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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. Now let’s take a glance at the latest hedge fund action surrounding Ampio Pharmaceuticals, Inc. (NYSE:AMPE).
Hedge fund activity in Ampio Pharmaceuticals, Inc. (NYSE:AMPE)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AMPE over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the most valuable position in Ampio Pharmaceuticals, Inc. (NYSE:AMPE). Renaissance Technologies has a $0.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Israel Englander of Millennium Management, with a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Ken Griffin’s Citadel Investment Group, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and . In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Ampio Pharmaceuticals, Inc. (NYSE:AMPE), around 0.0008% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, dishing out 0.0001 percent of its 13F equity portfolio to AMPE.
Judging by the fact that Ampio Pharmaceuticals, Inc. (NYSE:AMPE) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds who sold off their entire stakes last quarter. At the top of the heap, Hal Mintz’s Sabby Capital dumped the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $2 million in stock. Donald Sussman’s fund, Paloma Partners, also dropped its stock, about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Ampio Pharmaceuticals, Inc. (NYSE:AMPE). These stocks are CARBO Ceramics Inc. (NYSE:CRR), Dynagas LNG Partners LP (NYSE:DLNG), Lipocine Inc (NASDAQ:LPCN), and ESSA Pharma Inc. (NASDAQ:EPIX). This group of stocks’ market caps match AMPE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRR | 6 | 9284 | -2 |
| DLNG | 1 | 48 | -2 |
| LPCN | 3 | 1919 | 1 |
| EPIX | 3 | 17229 | 2 |
| Average | 3.25 | 7120 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $0 million in AMPE’s case. CARBO Ceramics Inc. (NYSE:CRR) is the most popular stock in this table. On the other hand Dynagas LNG Partners LP (NYSE:DLNG) is the least popular one with only 1 bullish hedge fund positions. Ampio Pharmaceuticals, Inc. (NYSE:AMPE) 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 AMPE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AMPE were disappointed as the stock returned -6% 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.