It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Agios Pharmaceuticals Inc (NASDAQ:AGIO).
Agios Pharmaceuticals Inc (NASDAQ:AGIO) has seen a decrease in hedge fund interest lately. Our calculations also showed that AGIO 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action regarding Agios Pharmaceuticals Inc (NASDAQ:AGIO).
How have hedgies been trading Agios Pharmaceuticals Inc (NASDAQ:AGIO)?
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in AGIO a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Casdin Capital was the largest shareholder of Agios Pharmaceuticals Inc (NASDAQ:AGIO), with a stake worth $30.3 million reported as of the end of September. Trailing Casdin Capital was Alkeon Capital Management, which amassed a stake valued at $25.5 million. Citadel Investment Group, Rock Springs Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Casdin Capital allocated the biggest weight to Agios Pharmaceuticals Inc (NASDAQ:AGIO), around 3.03% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, dishing out 0.46 percent of its 13F equity portfolio to AGIO.
Since Agios Pharmaceuticals Inc (NASDAQ:AGIO) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers that slashed their full holdings in the third quarter. It’s worth mentioning that Krishen Sud’s Sivik Global Healthcare said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, valued at an estimated $1.5 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Agios Pharmaceuticals Inc (NASDAQ:AGIO) but similarly valued. We will take a look at Mednax Inc. (NYSE:MD), BGC Partners, Inc. (NASDAQ:BGCP), Scientific Games Corporation (NASDAQ:SGMS), and Ligand Pharmaceuticals Incorporated (NASDAQ:LGND). This group of stocks’ market values resemble AGIO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MD | 19 | 265778 | 1 |
| BGCP | 21 | 270227 | -4 |
| SGMS | 25 | 575551 | -2 |
| LGND | 20 | 371572 | 1 |
| Average | 21.25 | 370782 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $371 million. That figure was $103 million in AGIO’s case. Scientific Games Corporation (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Mednax Inc. (NYSE:MD) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Agios Pharmaceuticals Inc (NASDAQ:AGIO) is even less popular than MD. Hedge funds clearly dropped the ball on AGIO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on AGIO as the stock returned 20.1% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
