Hedge Fund Sentiment Is Stagnant On Astec Industries, Inc. (ASTE)
Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Astec Industries, Inc. (NASDAQ:ASTE).
Astec Industries, Inc. (NASDAQ:ASTE) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare ASTE to other stocks including Washington Prime Group Inc. (NYSE:WPG), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), and Banc of California, Inc. (NYSE:BANC) to get a better sense of its popularity.
Video: Click the image to 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 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.
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 review the fresh hedge fund action regarding Astec Industries, Inc. (NASDAQ:ASTE).
What have hedge funds been doing with Astec Industries, Inc. (NASDAQ:ASTE)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in ASTE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Mario Gabelli's GAMCO Investors has the largest position in Astec Industries, Inc. (NASDAQ:ASTE), worth close to $44 million, comprising 0.3% of its total 13F portfolio. Coming in second is Phill Gross and Robert Atchinson of Adage Capital Management, with a $23.5 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions comprise Chuck Royce's Royce & Associates, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.
Since Astec Industries, Inc. (NASDAQ:ASTE) has experienced a decline in interest from hedge fund managers, it's safe to say that there was a specific group of hedgies that elected to cut their positions entirely heading into Q3. Intriguingly, Matthew Hulsizer's PEAK6 Capital Management dropped the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $0.9 million in stock, and Cristan Blackman's Empirical Capital Partners was right behind this move, as the fund dumped about $0.8 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Astec Industries, Inc. (NASDAQ:ASTE). We will take a look at Washington Prime Group Inc. (NYSE:WPG), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), Banc of California, Inc. (NYSE:BANC), and Partner Communications Company Ltd (NASDAQ:PTNR). This group of stocks' market caps are closest to ASTE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPG,11,18185,0 RCKT,14,225330,1 BANC,14,87482,-1 PTNR,2,11368,0 Average,10.25,85591,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $93 million in ASTE's case. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is the most popular stock in this table. On the other hand Partner Communications Company Ltd (NASDAQ:PTNR) is the least popular one with only 2 bullish hedge fund positions. Astec Industries, Inc. (NASDAQ:ASTE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 ASTE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ASTE were disappointed as the stock returned -4.1% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
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