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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards US Concrete Inc (NASDAQ:USCR) and determine whether hedge funds skillfully traded this stock.
Is US Concrete Inc (NASDAQ:USCR) a first-rate investment now? The best stock pickers were reducing their bets on the stock. The number of long hedge fund positions decreased by 1 in recent months. Our calculations also showed that USCR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). USCR was in 12 hedge funds' portfolios at the end of March. There were 13 hedge funds in our database with USCR positions at the end of the previous quarter.
Video: 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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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Paul Marshall of Marshall WacePaul Marshall[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the fresh hedge fund action encompassing US Concrete Inc (NASDAQ:USCR).
What does smart money think about US Concrete Inc (NASDAQ:USCR)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in USCR 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.
Among these funds, Royce & Associates held the most valuable stake in US Concrete Inc (NASDAQ:USCR), which was worth $7.7 million at the end of the third quarter. On the second spot was Cloverdale Capital Management which amassed $5.1 million worth of shares. Red Cedar Management, Citadel Investment Group, and Marshall Wace LLP 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 Red Cedar Management allocated the biggest weight to US Concrete Inc (NASDAQ:USCR), around 7.52% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, setting aside 3.97 percent of its 13F equity portfolio to USCR.
Because US Concrete Inc (NASDAQ:USCR) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds who sold off their full holdings heading into Q4. At the top of the heap, Thomas E. Claugus's GMT Capital dropped the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $5.3 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund sold off about $0.8 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to US Concrete Inc (NASDAQ:USCR). These stocks are Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), Dynavax Technologies Corporation (NASDAQ:DVAX), Ituran Location and Control Ltd. (NASDAQ:ITRN), and Gamco Investors Inc. (NYSE:GBL). All of these stocks' market caps are similar to USCR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHIL,11,24838,-3 DVAX,8,19065,-5 ITRN,10,44551,0 GBL,9,4523,0 Average,9.5,23244,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $24 million in USCR's case. Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) is the most popular stock in this table. On the other hand Dynavax Technologies Corporation (NASDAQ:DVAX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks US Concrete Inc (NASDAQ:USCR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on USCR as the stock returned 36.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.