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 returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month 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’ 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 Axcelis Technologies Inc (NASDAQ:ACLS).
Axcelis Technologies Inc (NASDAQ:ACLS) was in 16 hedge funds’ portfolios at the end of March. ACLS has seen an increase in activity from the world’s largest hedge funds lately. There were 9 hedge funds in our database with ACLS positions at the end of the previous quarter. Our calculations also showed that acls isn’t among the 30 most popular stocks among hedge funds.
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s take a look at the new hedge fund action encompassing Axcelis Technologies Inc (NASDAQ:ACLS).
What have hedge funds been doing with Axcelis Technologies Inc (NASDAQ:ACLS)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 78% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in ACLS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Rima Senvest Management was the largest shareholder of Axcelis Technologies Inc (NASDAQ:ACLS), with a stake worth $36.7 million reported as of the end of March. Trailing Rima Senvest Management was Royce & Associates, which amassed a stake valued at $14.4 million. Tenzing Global Investors, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the biggest position in Axcelis Technologies Inc (NASDAQ:ACLS). Millennium Management had $1.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Joel Greenblatt’s Gotham Asset Management, and D. E. Shaw’s D E Shaw.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Axcelis Technologies Inc (NASDAQ:ACLS) but similarly valued. These stocks are Heska Corp (NASDAQ:HSKA), Hanmi Financial Corp (NASDAQ:HAFC), Construction Partners, Inc. (NASDAQ:ROAD), and Osiris Therapeutics, Inc. (NASDAQ:OSIR). This group of stocks’ market valuations match ACLS’s market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HSKA,11,38274,-1 HAFC,12,37575,2 ROAD,8,13006,0 OSIR,13,55531,5 Average,11,36097,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $75 million in ACLS’s case. Osiris Therapeutics, Inc. (NASDAQ:OSIR) is the most popular stock in this table. On the other hand Construction Partners, Inc. (NASDAQ:ROAD) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Axcelis Technologies Inc (NASDAQ:ACLS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ACLS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ACLS were disappointed as the stock returned -27.3% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
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