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AECOM (ACM) vs. Top 20 Hedge Fund Stocks in 2019

Asma UL Husna

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 10 percentage points 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 AECOM (NYSE:ACM).

Is AECOM (NYSE:ACM) an exceptional investment right now? Prominent investors are taking a bullish view. The number of bullish hedge fund bets advanced by 4 recently. Our calculations also showed that ACM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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_199503" align="aligncenter" width="450"] Jeffrey Smith of Starboard Value LP[/caption]

Jeff Smith
Jeff Smith

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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's view the fresh hedge fund action regarding AECOM (NYSE:ACM).

What does smart money think about AECOM (NYSE:ACM)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACM over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Starboard Value LP held the most valuable stake in AECOM (NYSE:ACM), which was worth $205.8 million at the end of the third quarter. On the second spot was Luminus Management which amassed $175.3 million worth of shares. Lyrical Asset Management, Citadel Investment Group, and Pzena Investment 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 Engine Capital allocated the biggest weight to AECOM (NYSE:ACM), around 9.4% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, earmarking 6.86 percent of its 13F equity portfolio to ACM.

With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Centenus Global Management, managed by Sara Nainzadeh, initiated the most outsized call position in AECOM (NYSE:ACM). Centenus Global Management had $11.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $8.5 million investment in the stock during the quarter. The other funds with brand new ACM positions are Gregg Moskowitz's Interval Partners, Louis Bacon's Moore Global Investments, and Minhua Zhang's Weld Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AECOM (NYSE:ACM) but similarly valued. These stocks are Cemex SAB de CV (NYSE:CX), New York Community Bancorp, Inc. (NYSE:NYCB), Skechers USA Inc (NYSE:SKX), and TCF Financial Corporation (NASDAQ:TCF). This group of stocks' market caps match ACM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CX,9,59628,-2 NYCB,23,297857,4 SKX,26,520591,3 TCF,28,359418,8 Average,21.5,309374,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $956 million in ACM's case. TCF Financial Corporation (NASDAQ:TCF) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 9 bullish hedge fund positions. AECOM (NYSE:ACM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ACM as the stock returned 62.8% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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