Senomyx Inc. (SNMX): Are Hedge Funds Right About This Stock?

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 Senomyx Inc. (NASDAQ:SNMX).

Senomyx Inc. (NASDAQ:SNMX) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. While considering the drop in the share prices of the company, 16.79% in the last quarter, a decrease in interest might seem just; however, we will try to find out more about the hedge funds holding positions in Senomyx Inc. (NASDAQ:SNMX).

To get an overall outlook of the hedge fund positions in similar stocks, we will also compare Senomyx Inc. (NASDAQ:SNMX) to other stocks, including CRA International, Inc. (NASDAQ:CRAI), Lifetime Brands Inc (NASDAQ:LCUT), and Medgenics Inc (NYSEMKT:MDGN) to get a better sense of its popularity.

In the eyes of most stock holders, hedge funds are viewed as unimportant, outdated investment tools of yesteryear. While there are more than 8000 funds trading at present, Our researchers look at the upper echelon of this group, about 700 funds. Most estimates calculate that this group of people shepherds bulk of all hedge funds’ total asset base, and by monitoring their highest performing investments, Insider Monkey has unearthed various investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, let’s review the key action encompassing Senomyx Inc. (NASDAQ:SNMX).

What does the smart money think about Senomyx Inc. (NASDAQ:SNMX)?

At the end of September, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 14% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard Mashaal’s Rima Senvest Management has the biggest position in Senomyx Inc. (NASDAQ:SNMX), worth close to $28.3 million, accounting for 2% of its total 13F portfolio. The second most bullish fund manager is Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, which holds a $0.5 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish comprise John Zaro’s Bourgeon Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

Seeing as Senomyx Inc. (NASDAQ:SNMX) has experienced a declination in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers who were dropping their full holdings last quarter. At the top of the heap, Phil Frohlich’s Prescott Group Capital Management cut the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $3.3 million in stock. Kerr Neilson’s fund, Platinum Asset Management, also dumped its stock, about $0.3 million worth of shares. These moves are interesting, as aggregate hedge fund interest was cut by 1 fund last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Senomyx Inc. (NASDAQ:SNMX) but similarly valued. These stocks are CRA International, Inc. (NASDAQ:CRAI), Lifetime Brands Inc (NASDAQ:LCUT), Medgenics Inc (NYSEMKT:MDGN), and JAKKS Pacific, Inc. (NASDAQ:JAKK). This group of stocks’ market valuations match Senomyx Inc. (NASDAQ:SNMX)’s market valuation.

As you can see, these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $30 million in Senomyx Inc. (NASDAQ:SNMX)’s case. JAKKS Pacific, Inc. (NASDAQ:JAKK) is the most popular stock in this table. On the other hand, Lifetime Brands Inc (NASDAQ:LCUT) is the least popular one with only 4 bullish hedge fund positions. Senomyx Inc. (NASDAQ:SNMX) 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, JAKKS Pacific, Inc. (NASDAQ:JAKK) might be a better candidate to consider a long position.