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Did Hedge Funds Drop The Ball On Installed Building Products Inc (IBP)?

Reymerlyn Martin

The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds' movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Installed Building Products Inc (NYSE:IBP) and find out how it is affected by hedge funds' moves.

Is Installed Building Products Inc (NYSE:IBP) an exceptional investment right now? Prominent investors are in a bearish mood. The number of long hedge fund positions went down by 1 lately. Our calculations also showed that IBP isn't among the 30 most popular stocks among hedge funds. IBP was in 8 hedge funds' portfolios at the end of December. There were 9 hedge funds in our database with IBP holdings 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 market by 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746891" align="aligncenter" width="473"] Ben Stein of Spruce House Investment Management[/caption]

Ben Stein Spruce House Investment Management

We're going to take a peek at the key hedge fund action surrounding Installed Building Products Inc (NYSE:IBP).

What does the smart money think about Installed Building Products Inc (NYSE:IBP)?

At Q4's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IBP over the last 14 quarters. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

IBP_apr2019

More specifically, Spruce House Investment Management was the largest shareholder of Installed Building Products Inc (NYSE:IBP), with a stake worth $94.3 million reported as of the end of December. Trailing Spruce House Investment Management was GMT Capital, which amassed a stake valued at $16.6 million. Millennium Management, Gotham Asset Management, and Coliseum Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Installed Building Products Inc (NYSE:IBP) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedgies who sold off their entire stakes in the third quarter. Interestingly, Charles Clough's Clough Capital Partners dumped the largest stake of the 700 funds followed by Insider Monkey, totaling close to $4.4 million in stock. Jim Simons's fund, Renaissance Technologies, also sold off its stock, about $2.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to Installed Building Products Inc (NYSE:IBP). We will take a look at AZZ Incorporated (NYSE:AZZ), Cryolife Inc (NYSE:CRY), Materialise NV (NASDAQ:MTLS), and Encore Wire Corporation (NASDAQ:WIRE). This group of stocks' market caps match IBP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZZ,15,40118,1 CRY,11,26077,3 MTLS,4,13345,0 WIRE,12,29812,-1 Average,10.5,27338,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $126 million in IBP's case. AZZ Incorporated (NYSE:AZZ) is the most popular stock in this table. On the other hand Materialise NV (NASDAQ:MTLS) is the least popular one with only 4 bullish hedge fund positions. Installed Building Products Inc (NYSE:IBP) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on IBP as the stock returned 49% and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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