Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees in 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the third quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Berry Global Group Inc (NYSE:BERY).
Berry Global Group Inc (NYSE:BERY) shareholders have witnessed a slight decrease in hedge fund interest recently. Our calculations also showed that BERY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). However, overall hedge fund sentiment is still very bullish. 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 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 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.
[caption id="attachment_339739" align="aligncenter" width="600"] Ricky Sandler of Eminence Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the new hedge fund action regarding Berry Global Group Inc (NYSE:BERY).
What does smart money think about Berry Global Group Inc (NYSE:BERY)?
At Q3's end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the second quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in BERY a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Ricky Sandler's Eminence Capital has the number one position in Berry Global Group Inc (NYSE:BERY), worth close to $490 million, corresponding to 5.9% of its total 13F portfolio. The second most bullish fund manager is Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, which holds a $270.9 million position; the fund has 5.8% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain William B. Gray's Orbis Investment Management, Jonathan Barrett and Paul Segal's Luminus Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Anchor Bolt Capital allocated the biggest weight to Berry Global Group Inc (NYSE:BERY), around 6.35% of its portfolio. SCW Capital Management is also relatively very bullish on the stock, setting aside 6.08 percent of its 13F equity portfolio to BERY.
Due to the fact that Berry Global Group Inc (NYSE:BERY) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that slashed their full holdings in the third quarter. Intriguingly, Andreas Halvorsen's Viking Global sold off the biggest position of the 750 funds tracked by Insider Monkey, totaling an estimated $94.9 million in stock, and Daniel Lascano's Lomas Capital Management was right behind this move, as the fund sold off about $64.4 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Berry Global Group Inc (NYSE:BERY). We will take a look at Oshkosh Corporation (NYSE:OSK), Paylocity Holding Corp (NASDAQ:PCTY), Hudson Pacific Properties Inc (NYSE:HPP), and HUYA Inc. (NYSE:HUYA). All of these stocks' market caps match BERY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSK,22,434865,-2 PCTY,25,313646,-3 HPP,24,260095,7 HUYA,21,361903,-1 Average,23,342627,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $343 million. That figure was $1571 million in BERY's case. Paylocity Holding Corp (NASDAQ:PCTY) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Berry Global Group Inc (NYSE:BERY) is more popular among hedge funds. 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. Hedge funds were also right about betting on BERY as the stock returned 18.9% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.