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Did Hedge Funds Drop The Ball On Albany International Corp. (AIN)?

Nina Todic

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Albany International Corp. (NYSE:AIN).

Is Albany International Corp. (NYSE:AIN) ready to rally soon? The smart money is reducing their bets on the stock. The number of long hedge fund bets were trimmed by 1 in recent months. Our calculations also showed that AIN isn't among the 30 most popular stocks among hedge funds (view video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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 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 our short portfolio.

Richard Driehaus

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. Let's analyze the new hedge fund action regarding Albany International Corp. (NYSE:AIN).

How are hedge funds trading Albany International Corp. (NYSE:AIN)?

At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in AIN over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

No of Hedge Funds with AIN Positions

The largest stake in Albany International Corp. (NYSE:AIN) was held by Renaissance Technologies, which reported holding $49.1 million worth of stock at the end of March. It was followed by Marshall Wace LLP with a $18.5 million position. Other investors bullish on the company included GAMCO Investors, Driehaus Capital, and Two Sigma Advisors.

Since Albany International Corp. (NYSE:AIN) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there is a sect of funds that elected to cut their full holdings last quarter. At the top of the heap, Sander Gerber's Hudson Bay Capital Management dumped the biggest position of the 750 funds followed by Insider Monkey, worth about $7.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $4 million worth. These transactions 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 Albany International Corp. (NYSE:AIN) but similarly valued. These stocks are Nu Skin Enterprises, Inc. (NYSE:NUS), Integer Holdings Corporation (NYSE:ITGR), Element Solutions Inc (NYSE:ESI), and El Paso Electric Company (NYSE:EE). This group of stocks' market valuations are similar to AIN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUS,20,283194,-3 ITGR,18,189554,-11 ESI,27,654107,-5 EE,16,379540,-6 Average,20.25,376599,-6.25 [/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 $377 million. That figure was $82 million in AIN's case. Element Solutions Inc (NYSE:ESI) is the most popular stock in this table. On the other hand El Paso Electric Company (NYSE:EE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Albany International Corp. (NYSE:AIN) is even less popular than EE. Hedge funds clearly dropped the ball on AIN 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AIN as the stock returned 9% during the third quarter and outperformed the market by an even larger margin.

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

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