Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Amyris Inc (NASDAQ:AMRS).
Amyris Inc (NASDAQ:AMRS) investors should pay attention to a decrease in enthusiasm from smart money of late. AMRS was in 7 hedge funds’ portfolios at the end of the third quarter of 2019. There were 9 hedge funds in our database with AMRS positions at the end of the previous quarter. Our calculations also showed that AMRS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Philip Hempleman of Ardsley Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s check out the latest hedge fund action regarding Amyris Inc (NASDAQ:AMRS).
How have hedgies been trading Amyris Inc (NASDAQ:AMRS)?
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in AMRS a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Albert Cha and Frank Kung’s Vivo Capital has the largest position in Amyris Inc (NASDAQ:AMRS), worth close to $30.9 million, amounting to 3.5% of its total 13F portfolio. The second largest stake is held by Ardsley Partners, managed by Philip Hempleman, which holds a $3.4 million position; 0.8% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of David E. Shaw’s D E Shaw, Sculptor Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Vivo Capital allocated the biggest weight to Amyris Inc (NASDAQ:AMRS), around 3.52% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, designating 0.77 percent of its 13F equity portfolio to AMRS.
Because Amyris Inc (NASDAQ:AMRS) has faced falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies that slashed their full holdings heading into Q4. It’s worth mentioning that Efrem Kamen’s Pura Vida Investments sold off the biggest position of all the hedgies watched by Insider Monkey, comprising close to $0.9 million in stock, and Phil Frohlich’s Prescott Group Capital Management was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Amyris Inc (NASDAQ:AMRS) but similarly valued. These stocks are The Hackett Group, Inc. (NASDAQ:HCKT), Boingo Wireless Inc (NASDAQ:WIFI), AxoGen, Inc. (NASDAQ:AXGN), and Aurinia Pharmaceuticals Inc (NASDAQ:AUPH). This group of stocks’ market caps are closest to AMRS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HCKT | 16 | 72533 | 1 |
| WIFI | 13 | 42112 | -1 |
| AXGN | 13 | 62479 | -2 |
| AUPH | 13 | 87865 | 2 |
| Average | 13.75 | 66247 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $38 million in AMRS’s case. The Hackett Group, Inc. (NASDAQ:HCKT) is the most popular stock in this table. On the other hand Boingo Wireless Inc (NASDAQ:WIFI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Amyris Inc (NASDAQ:AMRS) is even less popular than WIFI. Hedge funds dodged a bullet by taking a bearish stance towards AMRS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AMRS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AMRS investors were disappointed as the stock returned -15.5% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
