We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Alaska Communications Systems Group Inc (NASDAQ:ALSK).
Hedge fund interest in Alaska Communications Systems Group Inc (NASDAQ:ALSK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ALSK to other stocks including Kingstone Companies Inc (NASDAQ:KINS), Allena Pharmaceuticals, Inc. (NASDAQ:ALNA), and Independence Contract Drilling Inc (NYSE:ICD) 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.
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_88925" align="aligncenter" width="450"] Bill Miller of Miller Value Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Keeping this in mind let's check out the fresh hedge fund action encompassing Alaska Communications Systems Group Inc (NASDAQ:ALSK).
What have hedge funds been doing with Alaska Communications Systems Group Inc (NASDAQ:ALSK)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in ALSK a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Alaska Communications Systems Group Inc (NASDAQ:ALSK), which was worth $4.5 million at the end of the third quarter. On the second spot was Ancora Advisors which amassed $0.8 million worth of shares. Miller Value Partners, Arrowstreet Capital, and Citadel Investment Group 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 Ancora Advisors allocated the biggest weight to Alaska Communications Systems Group Inc (NASDAQ:ALSK), around 0.03% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to ALSK.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's check out hedge fund activity in other stocks similar to Alaska Communications Systems Group Inc (NASDAQ:ALSK). These stocks are Kingstone Companies Inc (NASDAQ:KINS), Allena Pharmaceuticals, Inc. (NASDAQ:ALNA), Independence Contract Drilling Inc (NYSE:ICD), and Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX). All of these stocks' market caps match ALSK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KINS,6,8722,2 ALNA,7,19390,1 ICD,12,43780,2 CPIX,3,8535,0 Average,7,20107,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $6 million in ALSK's case. Independence Contract Drilling Inc (NYSE:ICD) is the most popular stock in this table. On the other hand Cumberland Pharmaceuticals, Inc. (NASDAQ:CPIX) is the least popular one with only 3 bullish hedge fund positions. Alaska Communications Systems Group Inc (NASDAQ:ALSK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ALSK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALSK investors were disappointed as the stock returned 3.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.