Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Ashland Global Holdings Inc. (NYSE:ASH).
Is Ashland Global Holdings Inc. (NYSE:ASH) a healthy stock for your portfolio? Prominent investors are turning less bullish. The number of long hedge fund positions went down by 1 lately. Our calculations also showed that ASH 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). ASH was in 30 hedge funds' portfolios at the end of September. There were 31 hedge funds in our database with ASH positions at the end of the previous quarter.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_337903" align="aligncenter" width="500"] Clifton S. Robbins of Blue Harbour Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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. Now we're going to go over the fresh hedge fund action encompassing Ashland Global Holdings Inc. (NYSE:ASH).
What does smart money think about Ashland Global Holdings Inc. (NYSE:ASH)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ASH over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ashland Global Holdings Inc. (NYSE:ASH) was held by Eminence Capital, which reported holding $402.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $116.2 million position. Other investors bullish on the company included Empyrean Capital Partners, Luminus Management, and Cruiser Capital Advisors. In terms of the portfolio weights assigned to each position Cruiser Capital Advisors allocated the biggest weight to Ashland Global Holdings Inc. (NYSE:ASH), around 63.33% of its 13F portfolio. FrontFour Capital Group is also relatively very bullish on the stock, setting aside 6.88 percent of its 13F equity portfolio to ASH.
Since Ashland Global Holdings Inc. (NYSE:ASH) has experienced falling interest from hedge fund managers, logic holds that there lies a certain "tier" of funds who sold off their positions entirely last quarter. Intriguingly, David Costen Haley's HBK Investments dropped the largest investment of all the hedgies monitored by Insider Monkey, totaling about $36.5 million in stock, and Isaac Corre's Governors Lane was right behind this move, as the fund dumped about $33.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ashland Global Holdings Inc. (NYSE:ASH) but similarly valued. We will take a look at ADT Inc. (NYSE:ADT), Stericycle Inc (NASDAQ:SRCL), Radian Group Inc (NYSE:RDN), and ViaSat, Inc. (NASDAQ:VSAT). This group of stocks' market values are similar to ASH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADT,16,161151,-4 SRCL,16,700061,0 RDN,22,178364,0 VSAT,27,1901555,-1 Average,20.25,735283,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $735 million. That figure was $1197 million in ASH's case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand ADT Inc. (NYSE:ADT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Ashland Global Holdings Inc. (NYSE:ASH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ASH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ASH were disappointed as the stock returned 10% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.