Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Is AdvanSix Inc. (NYSE:ASIX) the right investment to pursue these days? Prominent investors are getting less bullish. The number of long hedge fund positions went down by 4 recently. Our calculations also showed that ASIX isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's analyze the fresh hedge fund action encompassing AdvanSix Inc. (NYSE:ASIX).
How have hedgies been trading AdvanSix Inc. (NYSE:ASIX)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in ASIX 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 AdvanSix Inc. (NYSE:ASIX) was held by Firefly Value Partners, which reported holding $58.6 million worth of stock at the end of December. It was followed by D E Shaw with a $18.7 million position. Other investors bullish on the company included AQR Capital Management, Renaissance Technologies, and Third Avenue Management.
Because AdvanSix Inc. (NYSE:ASIX) has faced a decline in interest from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers who were dropping their full holdings heading into Q3. It's worth mentioning that David Harding's Winton Capital Management said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, valued at an estimated $16 million in stock. Austin Wiggins Hopper's fund, AWH Capital, also dropped its stock, about $5.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to AdvanSix Inc. (NYSE:ASIX). We will take a look at Encore Capital Group, Inc. (NASDAQ:ECPG), NorthStar Realty Europe Corp. (NYSE:NRE), Extreme Networks, Inc (NASDAQ:EXTR), and Wabash National Corporation (NYSE:WNC). All of these 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 ECPG,8,37757,0 NRE,13,108420,-2 EXTR,20,71221,1 WNC,20,70898,7 Average,15.25,72074,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $116 million in ASIX's case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand Encore Capital Group, Inc. (NASDAQ:ECPG) is the least popular one with only 8 bullish hedge fund positions. AdvanSix Inc. (NYSE:ASIX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ASIX, though not to the same extent, as the stock returned 23.3% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.