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You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Ardagh Group S.A. (NYSE:ARD) has seen a decrease in support from the world's most elite money managers in recent months. ARD was in 11 hedge funds' portfolios at the end of the second quarter of 2019. There were 12 hedge funds in our database with ARD holdings at the end of the previous quarter. Our calculations also showed that ARD isn't among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 look at the new hedge fund action encompassing Ardagh Group S.A. (NYSE:ARD).
Hedge fund activity in Ardagh Group S.A. (NYSE:ARD)
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in ARD a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Canyon Capital Advisors was the largest shareholder of Ardagh Group S.A. (NYSE:ARD), with a stake worth $50.9 million reported as of the end of March. Trailing Canyon Capital Advisors was Renaissance Technologies, which amassed a stake valued at $9.9 million. Whitebox Advisors, Millennium Management, and Tudor Investment Corp were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ARD as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ardagh Group S.A. (NYSE:ARD) but similarly valued. We will take a look at Viper Energy Partners LP (NASDAQ:VNOM), Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Ryman Hospitality Properties, Inc. (NYSE:RHP), and Healthcare Realty Trust Inc (NYSE:HR). This group of stocks' market caps are closest to ARD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNOM,13,160127,-4 CBRL,22,201300,-1 RHP,21,407514,3 HR,9,47376,-5 Average,16.25,204079,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $73 million in ARD's case. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) is the least popular one with only 9 bullish hedge fund positions. Ardagh Group S.A. (NYSE:ARD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ARD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARD investors were disappointed as the stock returned -9.7% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
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