The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Arch Resources, Inc. (NYSE:ARCH) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Arch Resources, Inc. (NYSE:ARCH) ready to rally soon? Investors who are in the know were taking a bearish view. The number of bullish hedge fund positions retreated by 6 lately. Arch Resources, Inc. (NYSE:ARCH) was in 18 hedge funds' portfolios at the end of June. The all time high for this statistics is 42. Our calculations also showed that ARCH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to take a glance at the recent hedge fund action surrounding Arch Resources, Inc. (NYSE:ARCH).
How are hedge funds trading Arch Resources, Inc. (NYSE:ARCH)?
At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the first quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in ARCH 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the most valuable position in Arch Resources, Inc. (NYSE:ARCH). Adage Capital Management has a $34.1 million position in the stock, comprising 0.1% of its 13F portfolio. On Adage Capital Management's heels is Maple Rock Capital, managed by Len Kipp and Xavier Majic, which holds a $20.8 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of Jonathan Barrett and Paul Segal's Luminus Management, Charles Paquelet's Skylands Capital and James Dondero's Highland Capital Management. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to Arch Resources, Inc. (NYSE:ARCH), around 4.16% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, setting aside 2.47 percent of its 13F equity portfolio to ARCH.
Due to the fact that Arch Resources, Inc. (NYSE:ARCH) has faced declining sentiment from the smart money, logic holds that there exists a select few fund managers that elected to cut their entire stakes by the end of the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $1.4 million in stock. Robert Polak's fund, Anchor Bolt Capital, also dumped its stock, about $1.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Arch Resources, Inc. (NYSE:ARCH) but similarly valued. These stocks are Bristow Group, Inc. (NYSE:VTOL), Juniper Industrial Holdings, Inc. (NYSE:JIH), Napco Security Technologies Inc (NASDAQ:NSSC), REX American Resources Corp (NYSE:REX), Unity Biotechnology, Inc. (NASDAQ:UBX), Peoples Bancorp Inc. (NASDAQ:PEBO), and Kimball International Inc (NASDAQ:KBAL). All of these stocks' market caps are similar to ARCH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VTOL,12,149392,12 JIH,18,119057,1 NSSC,8,4592,3 REX,9,38025,2 UBX,7,8909,2 PEBO,9,13100,-2 KBAL,16,77025,4 Average,11.3,58586,3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $120 million in ARCH's case. Juniper Industrial Holdings, Inc. (NYSE:JIH) is the most popular stock in this table. On the other hand Unity Biotechnology, Inc. (NASDAQ:UBX) is the least popular one with only 7 bullish hedge fund positions. Arch Resources, Inc. (NYSE:ARCH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARCH is 61.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on ARCH as the stock returned 49.5% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.