Were Hedge Funds Right About Embracing Acceleron Pharma Inc (XLRN)?

Abigail Fisher
·6 min read

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Acceleron Pharma Inc (NASDAQ:XLRN).

Acceleron Pharma Inc (NASDAQ:XLRN) has seen an increase in enthusiasm from smart money lately. Acceleron Pharma Inc (NASDAQ:XLRN) was in 48 hedge funds' portfolios at the end of June. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 38 hedge funds in our database with XLRN positions at the end of the first quarter. Our calculations also showed that XLRN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Brad Farber Atika Capital
Brad Farber Atika Capital

Brad Farber of Atika Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to go over the new hedge fund action regarding Acceleron Pharma Inc (NASDAQ:XLRN).

What have hedge funds been doing with Acceleron Pharma Inc (NASDAQ:XLRN)?

At second quarter's end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in XLRN over the last 20 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Farallon Capital, holds the number one position in Acceleron Pharma Inc (NASDAQ:XLRN). Farallon Capital has a $200.1 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $143 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of Behzad Aghazadeh's Avoro Capital Advisors (venBio Select Advisor), Bihua Chen's Cormorant Asset Management and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position Foresite Capital allocated the biggest weight to Acceleron Pharma Inc (NASDAQ:XLRN), around 3.56% of its 13F portfolio. Kingdon Capital is also relatively very bullish on the stock, designating 2.23 percent of its 13F equity portfolio to XLRN.

Consequently, specific money managers were breaking ground themselves. Paloma Partners, managed by Donald Sussman, established the most valuable position in Acceleron Pharma Inc (NASDAQ:XLRN). Paloma Partners had $10 million invested in the company at the end of the quarter. Brad Farber's Atika Capital also made a $6.2 million investment in the stock during the quarter. The other funds with brand new XLRN positions are Steve Cohen's Point72 Asset Management, Michael Gelband's ExodusPoint Capital, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Acceleron Pharma Inc (NASDAQ:XLRN) but similarly valued. These stocks are East West Bancorp, Inc. (NASDAQ:EWBC), Stericycle Inc (NASDAQ:SRCL), Sealed Air Corporation (NYSE:SEE), Flex Ltd. (NASDAQ:FLEX), Apache Corporation (NASDAQ:APA), Hyatt Hotels Corporation (NYSE:H), and Rexford Industrial Realty Inc (NYSE:REXR). This group of stocks' market valuations are similar to XLRN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EWBC,23,224008,-2 SRCL,23,699844,3 SEE,28,812312,-1 FLEX,34,941645,10 APA,40,590803,5 H,27,468490,3 REXR,24,179158,9 Average,28.4,559466,3.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $559 million. That figure was $803 million in XLRN's case. Apache Corporation (NASDAQ:APA) is the most popular stock in this table. On the other hand East West Bancorp, Inc. (NASDAQ:EWBC) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Acceleron Pharma Inc (NASDAQ:XLRN) is more popular among hedge funds. Our overall hedge fund sentiment score for XLRN is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on XLRN, though not to the same extent, as the stock returned 14.8% since the end of June (through October 23rd) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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