As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Quad/Graphics, Inc. (NYSE:QUAD).
Quad/Graphics, Inc. (NYSE:QUAD) was in 9 hedge funds' portfolios at the end of the third quarter of 2019. QUAD shareholders have witnessed a decrease in hedge fund interest recently. There were 16 hedge funds in our database with QUAD holdings at the end of the previous quarter. Our calculations also showed that QUAD 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' 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_88925" align="alignnone" width="600"] Bill Miller of Miller Value Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's review the key hedge fund action encompassing Quad/Graphics, Inc. (NYSE:QUAD).
How are hedge funds trading Quad/Graphics, Inc. (NYSE:QUAD)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in QUAD a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Miller Value Partners was the largest shareholder of Quad/Graphics, Inc. (NYSE:QUAD), with a stake worth $6.6 million reported as of the end of September. Trailing Miller Value Partners was Renaissance Technologies, which amassed a stake valued at $2.7 million. Water Island Capital, GLG Partners, and Citadel Investment Group 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 Miller Value Partners allocated the biggest weight to Quad/Graphics, Inc. (NYSE:QUAD), around 0.27% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to QUAD.
Judging by the fact that Quad/Graphics, Inc. (NYSE:QUAD) has witnessed declining sentiment from the smart money, we can see that there exists a select few fund managers that slashed their full holdings in the third quarter. Intriguingly, Paul Glazer's Glazer Capital dropped the biggest stake of all the hedgies monitored by Insider Monkey, worth close to $3.9 million in stock, and Shane Finemore's Manikay Partners was right behind this move, as the fund sold off about $2.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 7 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Quad/Graphics, Inc. (NYSE:QUAD). These stocks are New Senior Investment Group Inc (NYSE:SNR), Cohu, Inc. (NASDAQ:COHU), Whitestone REIT (NYSE:WSR), and Wanda Sports Group Company Limited (NASDAQ:WSG). This group of stocks' market values are similar to QUAD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNR,10,77836,0 COHU,11,46391,1 WSR,1,18218,-3 WSG,5,13083,5 Average,6.75,38882,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $15 million in QUAD's case. Cohu, Inc. (NASDAQ:COHU) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 1 bullish hedge fund positions. Quad/Graphics, Inc. (NYSE:QUAD) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately QUAD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on QUAD were disappointed as the stock returned -55.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.