The Latest Moves of 2 Top Hedge Funds and One Bullish Pick You Might Want to Follow

Aerie Pharmaceuticals Inc (NASDAQ:AERI) has attracted the attention of Phill Gross and Robert Atchinson, who have recently initiated a position in the company. According to a fresh filing with the Securities and Exchange Commission, Adage Capital Management is currently holding exactly 1.5 million shares or 5.84% of the company’s common stock. In the mean time, Clint Carlson has been busy dumping shares of Ultratech, Inc. (NASDAQ:UTEK), as disclosed in another filing with the SEC. His fund, Carlson Capital, has reported the disposal of 80,761 shares at prices varying between $15.66 and $15.68 per unit. Following these transactions, the fund is left with a little over 3.3 million shares, which account for roughly 12% of the total number of shares outstanding. Hedge funds have mixed sentiments towards these two stocks, with the number of funds holding long positions having decreased during the quarter, while the overall value of holdings has increased.

Having worked together at Harvard Management Company, Phill Gross (pictured) and Robert Atchinson have decided to start Adage Capital Management in 2001. They managed to beat the benchmark by an average of 4.5 percentage points a year while working for Harvard Management Co., which prompted the investment company to hire Adage to manage some $1.8 billion worth of assets. Since then Adage Capital Management has grown into a behemoth which oversees an equity portfolio with an estimated market value of more than $40 billion. Gross and Atchinson are investing heavily in the healthcare sector, having pledged 19% of their capital to biotech stocks. Puma Biotechnology Inc (NYSE:PBYI) is among their top stock picks, with Adage holding 5.68 million shares. They are also big fans of Apple Inc. (NASDAQ:AAPL), which is also their top equity investment, containing 8.84 million shares of the Cupertino-based tech giant. Microsoft Corporation (NASDAQ:MSFT) is also among their favorites, with the fund reporting a stake that amasses 12.5 million shares, up by 5% during the second quarter, in its latest 13F filing.

But why do we track the hedge funds’ activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 Index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 36 month period beginning with September 2012 (read more details here).

In this way, hedge funds have a mixed sentiment towards Aerie Pharmaceuticals Inc (NASDAQ:AERI), with the number of funds invested in the company having declined to 18 from 21, during the second quarter, while the total value of their holdings has increased by 2% to more than $103 million and 23% of the company’s common stock. James E. Flynn is a big fan,  having boosted his stake in Aerie by 265% during the quarter to amass 2.21 million shares, while Israel Englander dumped half of his investment, leaving Millennium Management with just 284,251 shares. Christopher Medlock James‘ Partner Fund Management also holds a notable stake in the company: 1.85 million shares, up by 687% during the quarter, as reported in its latest 13F filing.

Aerie Pharmaceuticals Inc (NASDAQ:AERI) has slumped by as much as 13% so far today and is currently at $18.20 per share, which gives the company a market cap of $512 million. The company has been bleeding money so far this year, with the loss widening with every quarter. For the three months ending June 30, Aerie posted no revenues and a loss of $0.73 per share, down from a loss of $0.49 per share for the second quarter of 2014. On September 23, the company announced its decision to go ahead with its fourth Phase 3 clinical trial of Rhopressa, an eye drop solution designed to lower intraocular pressure in patients suffering from glaucoma or ocular hypertension, with the final results expected within a year.

Having gained experience in the risk arbitrage divisions of Bass Brothers and Maxxam Group, Clint Carlson started Carlson Capital in 1993, employing a multi-strategy approach to investing. He has used a mix of fundamental analysis and different types of arbitrage strategies to develop an equity portfolio with an estimated value of $9.1 billion at the end of June. Carlson’s investments are well diversified among a large number of sectors, with technology and financial stocks among his favorites. According to its latest 13F filing, Carlson Capital’s largest equity position is Citigroup Inc (NYSE:C), with Carlson having increased his stake by 49% to 5.03 million shares. He has also nearly doubled his investments in Exelon Corporation (NYSE:EXC), a provider of utility services, and Partnerre Ltd (NYSE:PRE), an insurance holding company. Carlson Capital holds 8.37 million shares of Exelon and 1.24 million shares of Partnerre.

Ultratech, Inc. (NASDAQ:UTEK)‘s stock has been on a “montagne-russe” ride so far this year and is currently 16.3% in the red, dancing around the $15.8 level. For the quarter ending July 4, the company posted revenues of $45.9 million, up by 24.6% year-over-year and has returned to profitability with earnings of $0.06 per share. Wall Street does not expect the good times to last, estimating a loss of $0.15 per share and revenues of $35.6 million for the current quarter.

Phill Gross and Robert Atchinson are also betting on Ultratech, having increased their stake by 10% during the second quarter to 703,726 shares, while D. E. Shaw holds a similar position of 736,405 shares, up by 25% during the quarter. While the number of hedge funds with long positions in Ultratech, Inc. (NASDAQ:UTEK) decreased to 11 from 13 between April and June, the overall value of their holdings has risen by 19.6% to $113 million and account for approximately 22.1% of the total outstanding stock.

Disclosure: none.