The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of PGT Innovations Inc. (NYSE:PGTI) and find out how it is affected by hedge funds' moves.
Is PGT Innovations Inc. (NYSE:PGTI) a buy, sell, or hold? The smart money is in a bearish mood. The number of bullish hedge fund positions fell by 2 lately. Our calculations also showed that PGTI 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.
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 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.
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. We're going to go over the recent hedge fund action surrounding PGT Innovations Inc. (NYSE:PGTI).
How are hedge funds trading PGT Innovations Inc. (NYSE:PGTI)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PGTI over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in PGT Innovations Inc. (NYSE:PGTI). Renaissance Technologies has a $48.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Richard Scott Greeder of Broad Bay Capital, with a $23.8 million position; the fund has 8% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish comprise Israel Englander's Millennium Management, Richard S. Meisenberg's ACK Asset Management and Chuck Royce's Royce & Associates.
Since PGT Innovations Inc. (NYSE:PGTI) has experienced a decline in interest from hedge fund managers, logic holds that there was a specific group of hedge funds who sold off their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $0.6 million in stock. Cliff Asness's fund, AQR Capital Management, also dropped its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PGT Innovations Inc. (NYSE:PGTI) but similarly valued. These stocks are Odonate Therapeutics, Inc. (NASDAQ:ODT), Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), Standard Motor Products, Inc. (NYSE:SMP), and Columbus McKinnon Corporation (NASDAQ:CMCO). This group of stocks' market values match PGTI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODT,13,634369,4 AMPH,9,22407,-1 SMP,11,105177,-1 CMCO,20,77161,-1 Average,13.25,209779,0.25 [/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 $210 million. That figure was $124 million in PGTI's case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Amphastar Pharmaceuticals Inc (NASDAQ:AMPH) is the least popular one with only 9 bullish hedge fund positions. PGT Innovations Inc. (NYSE:PGTI) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on PGTI, though not to the same extent, as the stock returned 3.3% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.