At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Acuity Brands, Inc. (NYSE:AYI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Acuity Brands, Inc. (NYSE:AYI) ready to rally soon? Prominent investors were getting more bullish. The number of long hedge fund bets rose by 7 in recent months. Acuity Brands, Inc. (NYSE:AYI) was in 38 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AYI 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Blood of Generation Investment Management
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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's take a gander at the fresh hedge fund action encompassing Acuity Brands, Inc. (NYSE:AYI).
What have hedge funds been doing with Acuity Brands, Inc. (NYSE:AYI)?
At Q2's end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AYI over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Generation Investment Management held the most valuable stake in Acuity Brands, Inc. (NYSE:AYI), which was worth $255.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $88.5 million worth of shares. AQR Capital Management, Paradice Investment Management, and Millennium Management 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 Paradice Investment Management allocated the biggest weight to Acuity Brands, Inc. (NYSE:AYI), around 4.29% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, earmarking 3.05 percent of its 13F equity portfolio to AYI.
Consequently, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Acuity Brands, Inc. (NYSE:AYI). Arrowstreet Capital had $28 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $24.3 million position during the quarter. The other funds with brand new AYI positions are Joe DiMenna's ZWEIG DIMENNA PARTNERS, Michael Cowley's Sandbar Asset Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's also examine hedge fund activity in other stocks similar to Acuity Brands, Inc. (NYSE:AYI). These stocks are TopBuild Corp (NYSE:BLD), Nexstar Media Group, Inc. (NASDAQ:NXST), InVitae Corporation (NYSE:NVTA), frontdoor, inc. (NASDAQ:FTDR), LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), and SL Green Realty Corp (NYSE:SLG). This group of stocks' market values match AYI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLD,30,141163,10 NXST,42,822223,1 NVTA,16,769078,6 FTDR,41,746277,8 TREE,15,102759,-6 HXL,18,230973,-9 SLG,26,258760,3 Average,26.9,438748,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $650 million in AYI's case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 bullish hedge fund positions. Acuity Brands, Inc. (NYSE:AYI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AYI is 82.6. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on AYI, though not to the same extent, as the stock returned 14.3% since the end of June and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.