It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Alexander & Baldwin Inc (NYSE:ALEX).
Is Alexander & Baldwin Inc (NYSE:ALEX) a sound stock to buy now? The smart money is getting more optimistic. The number of long hedge fund positions rose by 5 in recent months. Our calculations also showed that ALEX isn't among the 30 most popular stocks among hedge funds (see the video below). ALEX was in 10 hedge funds' portfolios at the end of June. There were 5 hedge funds in our database with ALEX holdings at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the recent hedge fund action regarding Alexander & Baldwin Inc (NYSE:ALEX).
Hedge fund activity in Alexander & Baldwin Inc (NYSE:ALEX)
At Q2's end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in ALEX a year ago. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, GLG Partners was the largest shareholder of Alexander & Baldwin Inc (NYSE:ALEX), with a stake worth $15.6 million reported as of the end of March. Trailing GLG Partners was AQR Capital Management, which amassed a stake valued at $2.3 million. Citadel Investment Group, Millennium Management, and Weld Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in Alexander & Baldwin Inc (NYSE:ALEX). Citadel Investment Group had $1.6 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury's Stevens Capital Management, John Overdeck and David Siegel's Two Sigma Advisors, and Renaissance Technologies.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Alexander & Baldwin Inc (NYSE:ALEX) but similarly valued. We will take a look at National Storage Affiliates Trust (NYSE:NSA), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Walker & Dunlop Inc. (NYSE:WD), and Upwork Inc. (NASDAQ:UPWK). This group of stocks' market valuations are similar to ALEX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NSA,18,131987,2 IRWD,21,305653,-2 WD,15,64830,1 UPWK,10,50349,1 Average,16,138205,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $24 million in ALEX's case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Upwork Inc. (NASDAQ:UPWK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Alexander & Baldwin Inc (NYSE:ALEX) is even less popular than UPWK. Hedge funds clearly dropped the ball on ALEX 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ALEX as the stock returned 7% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.