Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards AdvanSix Inc. (NYSE:ASIX).
AdvanSix Inc. (NYSE:ASIX) was in 15 hedge funds' portfolios at the end of the second quarter of 2019. ASIX investors should be aware of a decrease in hedge fund interest lately. There were 19 hedge funds in our database with ASIX positions at the end of the previous quarter. Our calculations also showed that ASIX 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.
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 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 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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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 review the fresh hedge fund action surrounding AdvanSix Inc. (NYSE:ASIX).
How have hedgies been trading AdvanSix Inc. (NYSE:ASIX)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ASIX over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ryan Heslop and Ariel Warszawski's Firefly Value Partners has the most valuable position in AdvanSix Inc. (NYSE:ASIX), worth close to $60.6 million, comprising 7.1% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $21.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Overdeck and David Siegel's Two Sigma Advisors.
Due to the fact that AdvanSix Inc. (NYSE:ASIX) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few hedge funds that slashed their entire stakes in the second quarter. Intriguingly, Israel Englander's Millennium Management said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $3.9 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dropped about $1.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to AdvanSix Inc. (NYSE:ASIX). We will take a look at Cass Information Systems, Inc. (NASDAQ:CASS), Ruth's Hospitality Group, Inc. (NASDAQ:RUTH), Extraction Oil & Gas, Inc. (NASDAQ:XOG), and Keane Group, Inc. (NYSE:FRAC). This group of stocks' market caps are similar to ASIX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CASS,11,20185,0 RUTH,16,54849,1 XOG,17,91772,-3 FRAC,21,341424,-7 Average,16.25,127058,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $116 million in ASIX's case. Keane Group, Inc. (NYSE:FRAC) is the most popular stock in this table. On the other hand Cass Information Systems, Inc. (NASDAQ:CASS) is the least popular one with only 11 bullish hedge fund positions. AdvanSix Inc. (NYSE:ASIX) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on ASIX, though not to the same extent, as the stock returned 5.3% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
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