Is Acme United Corporation (ACU) Going to Burn These Hedge Funds?
Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Acme United Corporation (NYSE:ACU) based on that data.
Hedge fund interest in Acme United Corporation (NYSE:ACU) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as 180 Degree Capital Corp. (NASDAQ:TURN), RF Industries, Ltd. (NASDAQ:RFIL), and RumbleOn, Inc. (NASDAQ:RMBL) to gather more data points. Our calculations also showed that ACU isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_193003" align="aligncenter" width="450"]
Chuck Royce of Royce & Associates[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the latest hedge fund action encompassing Acme United Corporation (NYSE:ACU).
What have hedge funds been doing with Acme United Corporation (NYSE:ACU)?
At the end of the third quarter, a total of 2 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACU over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies has the most valuable position in Acme United Corporation (NYSE:ACU), worth close to $3.4 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $2.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Acme United Corporation (NYSE:ACU), around 0.02% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0029 percent of its 13F equity portfolio to ACU.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Acme United Corporation (NYSE:ACU) but similarly valued. We will take a look at 180 Degree Capital Corp. (NASDAQ:TURN), RF Industries, Ltd. (NASDAQ:RFIL), RumbleOn, Inc. (NASDAQ:RMBL), and Global Eagle Entertainment Inc. (NASDAQ:ENT). This group of stocks' market values resemble ACU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TURN,2,7328,0 RFIL,3,6293,0 RMBL,6,7023,0 ENT,7,23371,0 Average,4.5,11004,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $6 million in ACU's case. Global Eagle Entertainment Inc. (NASDAQ:ENT) is the most popular stock in this table. On the other hand 180 Degree Capital Corp. (NASDAQ:TURN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Acme United Corporation (NYSE:ACU) is even less popular than TURN. Hedge funds clearly dropped the ball on ACU 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on ACU as the stock returned 12% during the fourth quarter (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
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