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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Arcosa, Inc. (NYSE:ACA).
Arcosa, Inc. (NYSE:ACA) has seen a decrease in activity from the world's largest hedge funds in recent months. ACA was in 20 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 28 hedge funds in our database with ACA positions at the end of the previous quarter. Our calculations also showed that ACA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most stock holders, hedge funds are seen as underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds with their doors open at present, We choose to focus on the upper echelon of this club, approximately 850 funds. Most estimates calculate that this group of people manage most of all hedge funds' total capital, and by watching their finest equity investments, Insider Monkey has determined a number of investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a gander at the fresh hedge fund action encompassing Arcosa, Inc. (NYSE:ACA).
Hedge fund activity in Arcosa, Inc. (NYSE:ACA)
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in ACA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Arcosa, Inc. (NYSE:ACA). Royce & Associates has a $49 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Parsifal Capital Management, managed by David Zorub, which holds a $36.4 million position; 9.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions comprise David Harding's Winton Capital Management, Donald Yacktman's Yacktman Asset Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Parsifal Capital Management allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 9.06% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, earmarking 6.54 percent of its 13F equity portfolio to ACA.
Due to the fact that Arcosa, Inc. (NYSE:ACA) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of fund managers that decided to sell off their entire stakes last quarter. Intriguingly, Jeffrey Ubben's ValueAct Capital cut the largest position of the 750 funds followed by Insider Monkey, worth close to $54 million in stock, and Zachary Miller's Parian Global Management was right behind this move, as the fund dumped about $8.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Arcosa, Inc. (NYSE:ACA). We will take a look at Gray Television, Inc. (NYSE:GTN), Eidos Therapeutics, Inc. (NASDAQ:EIDX), Freshpet Inc (NASDAQ:FRPT), and Sally Beauty Holdings, Inc. (NYSE:SBH). This group of stocks' market valuations resemble ACA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTN,24,252616,0 EIDX,20,312421,5 FRPT,20,122100,2 SBH,27,205932,3 Average,22.75,223267,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $247 million in ACA's case. Sally Beauty Holdings, Inc. (NYSE:SBH) is the most popular stock in this table. On the other hand Eidos Therapeutics, Inc. (NASDAQ:EIDX) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Arcosa, Inc. (NYSE:ACA) is even less popular than EIDX. Hedge funds clearly dropped the ball on ACA 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on ACA as the stock returned -9.5% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.