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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in ACV Auctions Inc. (NASDAQ:ACVA)? The smart money sentiment can provide an answer to this question.
ACV Auctions Inc. (NASDAQ:ACVA) was in 22 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 25. ACVA investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 25 hedge funds in our database with ACVA holdings at the end of March. Our calculations also showed that ACVA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
According to most traders, hedge funds are assumed to be underperforming, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation today, We choose to focus on the moguls of this club, approximately 850 funds. It is estimated that this group of investors preside over the lion's share of all hedge funds' total asset base, and by following their inimitable picks, Insider Monkey has spotted several investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Harold Levy of Iridian Asset Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to view the recent hedge fund action surrounding ACV Auctions Inc. (NASDAQ:ACVA).
Do Hedge Funds Think ACVA Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in ACVA a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of ACV Auctions Inc. (NASDAQ:ACVA), with a stake worth $14.1 million reported as of the end of June. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $13.2 million. Adage Capital Management, ThornTree Capital Partners, and Iridian Asset 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 ThornTree Capital Partners allocated the biggest weight to ACV Auctions Inc. (NASDAQ:ACVA), around 1.54% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, setting aside 1.26 percent of its 13F equity portfolio to ACVA.
Because ACV Auctions Inc. (NASDAQ:ACVA) has experienced a decline in interest from the smart money, logic holds that there exists a select few hedge funds that elected to cut their positions entirely last quarter. It's worth mentioning that Gabriel Plotkin's Melvin Capital Management dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at close to $24.2 million in stock. Alex Sacerdote's fund, Whale Rock Capital Management, also sold off its stock, about $13.8 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as ACV Auctions Inc. (NASDAQ:ACVA) but similarly valued. We will take a look at Cohen & Steers, Inc. (NYSE:CNS), Jamf Holding Corp. (NASDAQ:JAMF), loanDepot, Inc. (NYSE:LDI), SeaWorld Entertainment Inc (NYSE:SEAS), ONE Gas Inc (NYSE:OGS), WNS (Holdings) Limited (NYSE:WNS), and Qualys Inc (NASDAQ:QLYS). This group of stocks' market caps match ACVA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNS,14,86459,-3 JAMF,19,2291473,2 LDI,4,7004,-2 SEAS,41,1948325,2 OGS,13,31848,0 WNS,20,294371,-1 QLYS,20,214955,8 Average,18.7,696348,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $105 million in ACVA's case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand loanDepot, Inc. (NYSE:LDI) is the least popular one with only 4 bullish hedge fund positions. ACV Auctions Inc. (NASDAQ:ACVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ACVA is 52.7. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately ACVA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ACVA were disappointed as the stock returned -22.4% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.