Is Aldeyra Therapeutics Inc (ALDX) Going to Burn These Hedge Funds?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets, hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Aldeyra Therapeutics Inc (NASDAQ:ALDX).

Since the end of June, Aldeyra’s stock has advanced by more than 15%. However, the hedge fund interest in Aldeyra Therapeutics Inc (NASDAQ:ALDX) 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 Amtech Systems, Inc. (NASDAQ:ASYS), Comstock Mining, Inc. (NYSEAMEX:LODE), and Cyren Ltd (NASDAQ:CYRN) to gather more data points.

In the eyes of most shareholders, hedge funds are viewed as underperforming, old investment tools of years past. While there are more than an 8000 funds trading at the moment, Our researchers look at the crème de la crème of this club, approximately 700 funds. These investment experts watch over the lion’s share of the hedge fund industry’s total capital, and by monitoring their unrivaled investments, Insider Monkey has identified several investment strategies that have historically outperformed the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s view the fresh action regarding Aldeyra Therapeutics Inc (NASDAQ:ALDX).

What have hedge funds been doing with Aldeyra Therapeutics Inc (NASDAQ:ALDX)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock. Among these investors, Joseph Edelman’s Perceptive Advisors has the biggest position in Aldeyra Therapeutics Inc (NASDAQ:ALDX), worth close to $5.6 million, amounting to 0.4% of its total 13F portfolio. Coming in second is Deerfield Management, managed by James E. Flynn, which holds a $4 million position; 0.2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass Julian Baker and Felix Baker’s Baker Bros. Advisors, Fred Knoll’s Knoll Capital Management, and Hal Mintz’s Sabby Capital.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Aldeyra Therapeutics Inc (NASDAQ:ALDX) but similarly valued. We will take a look at Amtech Systems, Inc. (NASDAQ:ASYS), Comstock Mining, Inc. (NYSEAMEX:LODE), Cyren Ltd (NASDAQ:CYRN), and Barington/Hilco Acquisition Corp. Common Stock (NASDAQ:BHAC). This group of stocks’ market values match ALDX’s market value.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $13 million in ALDX’s case. Cyren Ltd (NASDAQ:CYRN) is the most popular stock in this table, while Aldeyra Therapeutics Inc (NASDAQ:ALDX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.