We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Post Holdings Inc (NYSE:POST).
Is Post Holdings Inc (NYSE:POST) a buy right now? Hedge funds are selling. The number of long hedge fund bets dropped by 1 in recent months. Our calculations also showed that POST isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager 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 view the latest hedge fund action surrounding Post Holdings Inc (NYSE:POST).
How are hedge funds trading Post Holdings Inc (NYSE:POST)?
Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in POST 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.
The largest stake in Post Holdings Inc (NYSE:POST) was held by Route One Investment Company, which reported holding $620.2 million worth of stock at the end of March. It was followed by Iridian Asset Management with a $192.7 million position. Other investors bullish on the company included Diamond Hill Capital, Citadel Investment Group, and Renaissance Technologies.
Seeing as Post Holdings Inc (NYSE:POST) has experienced falling interest from hedge fund managers, logic holds that there was a specific group of funds who sold off their full holdings heading into Q3. Interestingly, Stanley Druckenmiller's Duquesne Capital cut the largest position of all the hedgies monitored by Insider Monkey, comprising about $22.3 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund dropped about $2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Post Holdings Inc (NYSE:POST) but similarly valued. These stocks are Aurora Cannabis Inc. (NYSE:ACB), Ares Capital Corporation (NASDAQ:ARCC), Kimco Realty Corp (NYSE:KIM), and Store Capital Corporation (NYSE:STOR). This group of stocks' market valuations are closest to POST's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACB,10,28795,-1 ARCC,23,239409,1 KIM,19,112522,8 STOR,22,987824,0 Average,18.5,342138,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $1507 million in POST's case. Ares Capital Corporation (NASDAQ:ARCC) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Post Holdings Inc (NYSE:POST) is more popular among hedge funds. 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. Hedge funds were also right about betting on POST, though not to the same extent, as the stock returned 1.8% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.