We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Achaogen Inc (NASDAQ:AKAO), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in Achaogen Inc (NASDAQ:AKAO) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as ZAIS Financial Corp. (NYSE:ZFC), Nivalis Therapeutics Inc (NASDAQ:NVLS), and Xerium Technologies, Inc. (NYSE:XRM) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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With all of this in mind, we’re going to analyze the latest action regarding Achaogen Inc (NASDAQ:AKAO).
What have hedge funds been doing with Achaogen Inc (NASDAQ:AKAO)?
Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2016. By comparison, 8 hedge funds held shares or bullish call options in AKAO heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Oleg Nodelman’s EcoR1 Capital has the most valuable position in Achaogen Inc (NASDAQ:AKAO), worth close to $8 million, comprising 2.5% of its total 13F portfolio. The second largest stake is held by Point72 Asset Management, led by Steve Cohen, holding a $4.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Renaissance Technologies, one of the largest hedge funds in the world, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Julian Baker and Felix Baker’s Baker Bros. Advisors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: DAFNA Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Redmile Group).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Achaogen Inc (NASDAQ:AKAO) but similarly valued. We will take a look at ZAIS Financial Corp. (NYSE:ZFC), Nivalis Therapeutics Inc (NASDAQ:NVLS), Xerium Technologies, Inc. (NYSE:XRM), and Corium International Inc (NASDAQ:CORI). This group of stocks’ market caps resemble AKAO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZFC | 4 | 4999 | -1 |
| NVLS | 13 | 63291 | 1 |
| XRM | 12 | 17640 | 1 |
| CORI | 3 | 19184 | -1 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $16 million in AKAO’s case. Nivalis Therapeutics Inc (NASDAQ:NVLS) is the most popular stock in this table. On the other hand Corium International Inc (NASDAQ:CORI) is the least popular one with only 3 bullish hedge fund positions. Achaogen Inc (NASDAQ:AKAO) 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. In this regard NVLS might be a better candidate to consider taking a long position in.
