How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Albany International Corp. (NYSE:AIN) and determine whether hedge funds had an edge regarding this stock.
Albany International Corp. (NYSE:AIN) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AIN has seen an increase in hedge fund interest of late. There were 18 hedge funds in our database with AIN positions at the end of the first quarter. Our calculations also showed that AIN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 56 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.
Ian Wace of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to review the fresh hedge fund action regarding Albany International Corp. (NYSE:AIN).
Hedge fund activity in Albany International Corp. (NYSE:AIN)
At second quarter's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in AIN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in Albany International Corp. (NYSE:AIN). Renaissance Technologies has a $19.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Balyasny Asset Management, led by Dmitry Balyasny, holding a $6.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism contain John Overdeck and David Siegel's Two Sigma Advisors, Mario Gabelli's GAMCO Investors and Paul Marshall and Ian Wace's Marshall Wace LLP. In terms of the portfolio weights assigned to each position Quantinno Capital allocated the biggest weight to Albany International Corp. (NYSE:AIN), around 0.35% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to AIN.
As aggregate interest increased, key money managers were leading the bulls' herd. ExodusPoint Capital, managed by Michael Gelband, assembled the biggest position in Albany International Corp. (NYSE:AIN). ExodusPoint Capital had $0.4 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $0.3 million position during the quarter. The other funds with brand new AIN positions are Peter Muller's PDT Partners and Chuck Royce's Royce & Associates.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Albany International Corp. (NYSE:AIN) but similarly valued. We will take a look at Tenet Healthcare Corp (NYSE:THC), Prospect Capital Corporation (NASDAQ:PSEC), Cardlytics, Inc. (NASDAQ:CDLX), Prestige Consumer Healthcare Inc. (NYSE:PBH), Central Garden & Pet Co (NASDAQ:CENT), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), and EVO Payments, Inc. (NASDAQ:EVOP). This group of stocks' market valuations are closest to AIN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THC,28,582586,-7 PSEC,7,22588,-1 CDLX,27,588778,1 PBH,20,118784,3 CENT,15,138827,-4 DRNA,35,342076,10 EVOP,14,49627,4 Average,20.9,263324,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $46 million in AIN's case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Albany International Corp. (NYSE:AIN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AIN is 57.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AIN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AIN investors were disappointed as the stock returned -15.4% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Get real-time email alerts: Follow Albany International Corp (NYSE:AIN)
Disclosure: None. This article was originally published at Insider Monkey.