The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Arcosa, Inc. (NYSE:ACA), and what that likely means for the prospects of the company and its stock. Arcosa is an infrastructure company; especially these 15 states with the worst roads and infrastructure in America need products and solutions provided by Arcosa.
Arcosa, Inc. (NYSE:ACA) investors should pay attention to an increase in hedge fund sentiment recently. Our calculations also showed that ACA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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' 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.
[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus 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 go over the fresh hedge fund action surrounding Arcosa, Inc. (NYSE:ACA).
What have hedge funds been doing with Arcosa, Inc. (NYSE:ACA)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ACA over the last 17 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeffrey Ubben's ValueAct Capital has the most valuable position in Arcosa, Inc. (NYSE:ACA), worth close to $54 million, amounting to 0.6% of its total 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $39.8 million position; 0.4% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Donald Yacktman's Yacktman Asset Management, Ken Griffin's Citadel Investment Group and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position Harvey Partners allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 6.12% of its portfolio. Parian Global Management is also relatively very bullish on the stock, dishing out 3.68 percent of its 13F equity portfolio to ACA.
As aggregate interest increased, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Arcosa, Inc. (NYSE:ACA). Arrowstreet Capital had $1.2 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new ACA investors: Renaissance Technologies, Donald Sussman's Paloma Partners, and John Zaro's Bourgeon Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Arcosa, Inc. (NYSE:ACA) but similarly valued. We will take a look at Focus Financial Partners Inc. (NASDAQ:FOCS), Fresh Del Monte Produce Inc (NYSE:FDP), Global Net Lease, Inc. (NYSE:GNL), and Dillard's, Inc. (NYSE:DDS). This group of stocks' market valuations match ACA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOCS,10,43591,1 FDP,11,53395,0 GNL,12,74097,4 DDS,20,266166,0 Average,13.25,109312,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $235 million in ACA's case. Dillard's, Inc. (NYSE:DDS) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Arcosa, Inc. (NYSE:ACA) 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 ACA as the stock returned 15% 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.