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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2019. What do these smart investors think about ARC Document Solutions Inc (NYSE:ARC)?
ARC Document Solutions Inc (NYSE:ARC) has seen an increase in hedge fund interest in recent months. ARC was in 8 hedge funds' portfolios at the end of the third quarter of 2019. There were 6 hedge funds in our database with ARC positions at the end of the previous quarter. Our calculations also showed that ARC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
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Jim Simons of Renaissance Technologies[/caption]
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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's analyze the fresh hedge fund action encompassing ARC Document Solutions Inc (NYSE:ARC).
What have hedge funds been doing with ARC Document Solutions Inc (NYSE:ARC)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in ARC 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, Renaissance Technologies was the largest shareholder of ARC Document Solutions Inc (NYSE:ARC), with a stake worth $4.7 million reported as of the end of September. Trailing Renaissance Technologies was Pzena Investment Management, which amassed a stake valued at $2.5 million. D E Shaw, Millennium Management, and Two Sigma Advisors 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 Pzena Investment Management allocated the biggest weight to ARC Document Solutions Inc (NYSE:ARC), around 0.01% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, earmarking 0.0041 percent of its 13F equity portfolio to ARC.
As industrywide interest jumped, key hedge funds have jumped into ARC Document Solutions Inc (NYSE:ARC) headfirst. Bailard Inc, managed by Thomas Bailard, established the biggest position in ARC Document Solutions Inc (NYSE:ARC). Bailard Inc had $0.1 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0 million position during the quarter.
Let's now review hedge fund activity in other stocks similar to ARC Document Solutions Inc (NYSE:ARC). We will take a look at Crown Crafts, Inc. (NASDAQ:CRWS), Kentucky First Federal Bancorp (NASDAQ:KFFB), Manhattan Bridge Capital, Inc (NASDAQ:LOAN), and Maiden Holdings, Ltd. (NASDAQ:MHLD). This group of stocks' market valuations match ARC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRWS,8,7282,3 KFFB,1,512,0 LOAN,1,1269,-1 MHLD,10,8469,1 Average,5,4383,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $4 million. That figure was $8 million in ARC's case. Maiden Holdings, Ltd. (NASDAQ:MHLD) is the most popular stock in this table. On the other hand Kentucky First Federal Bancorp (NASDAQ:KFFB) is the least popular one with only 1 bullish hedge fund positions. ARC Document Solutions Inc (NYSE:ARC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ARC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ARC were disappointed as the stock returned -17.6% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.