We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Veritiv Corp (NYSE:VRTV) and determine whether hedge funds skillfully traded this stock.
Veritiv Corp (NYSE:VRTV) investors should pay attention to an increase in support from the world's most elite money managers of late. VRTV was in 13 hedge funds' portfolios at the end of the first quarter of 2020. There were 11 hedge funds in our database with VRTV holdings at the end of the previous quarter. Our calculations also showed that VRTV isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by 58 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the latest hedge fund action regarding Veritiv Corp (NYSE:VRTV).
How have hedgies been trading Veritiv Corp (NYSE:VRTV)?
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VRTV over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Baupost Group was the largest shareholder of Veritiv Corp (NYSE:VRTV), with a stake worth $28 million reported as of the end of September. Trailing Baupost Group was AQR Capital Management, which amassed a stake valued at $1.1 million. Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP 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 Baupost Group allocated the biggest weight to Veritiv Corp (NYSE:VRTV), around 0.41% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to VRTV.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Tudor Investment Corp, managed by Paul Tudor Jones, established the largest position in Veritiv Corp (NYSE:VRTV). Tudor Investment Corp had $0.1 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $0.1 million position during the quarter. The only other fund with a brand new VRTV position is Michael Gelband's ExodusPoint Capital.
Let's now take a look at hedge fund activity in other stocks similar to Veritiv Corp (NYSE:VRTV). We will take a look at Del Taco Restaurants Inc (NASDAQ:TACO), Coastal Financial Corporation (NASDAQ:CCB), Workhorse Group, Inc. (NASDAQ:WKHS), and Westport Fuel Systems Inc. (NASDAQ:WPRT). This group of stocks' market values match VRTV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TACO,8,5571,0 CCB,2,11773,-2 WKHS,6,5522,-4 WPRT,13,12752,0 Average,7.25,8905,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $33 million in VRTV's case. Westport Fuel Systems Inc. (NASDAQ:WPRT) is the most popular stock in this table. On the other hand Coastal Financial Corporation (NASDAQ:CCB) is the least popular one with only 2 bullish hedge fund positions. Veritiv Corp (NYSE:VRTV) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on VRTV as the stock returned 94.3% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.