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While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding ARC Document Solutions Inc (NYSE:ARC).
Hedge fund interest in ARC Document Solutions Inc (NYSE:ARC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ARC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare ARC to other stocks including Ekso Bionics Holdings, Inc. (NASDAQ:EKSO), ImmuCell Corporation (NASDAQ:ICCC), and Immuron Limited (NASDAQ:IMRN) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now we're going to take a peek at the new hedge fund action encompassing ARC Document Solutions Inc (NYSE:ARC).
What does smart money think about ARC Document Solutions Inc (NYSE:ARC)?
Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARC over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in ARC Document Solutions Inc (NYSE:ARC), which was worth $3 million at the end of the third quarter. On the second spot was D E Shaw which amassed $0.2 million worth of shares. Two Sigma Advisors, Millennium Management, and Tudor Investment Corp 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 Renaissance Technologies allocated the biggest weight to ARC Document Solutions Inc (NYSE:ARC), around 0.003% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, designating 0.0008 percent of its 13F equity portfolio to ARC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks similar to ARC Document Solutions Inc (NYSE:ARC). These stocks are Ekso Bionics Holdings, Inc. (NASDAQ:EKSO), ImmuCell Corporation (NASDAQ:ICCC), Immuron Limited (NASDAQ:IMRN), Pintec Technology Holdings Limited (NASDAQ:PT), Build-A-Bear Workshop, Inc (NYSE:BBW), Paramount Gold Nevada Corp (NYSE:PZG), and UTStarcom Holdings Corp (NASDAQ:UTSI). This group of stocks' market valuations are similar to ARC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EKSO,3,4100,1 ICCC,2,927,0 IMRN,2,1431,1 PT,1,31,0 BBW,9,10501,1 PZG,3,685,1 UTSI,3,1346,2 Average,3.3,2717,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $3 million in ARC's case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand Pintec Technology Holdings Limited (NASDAQ:PT) is the least popular one with only 1 bullish hedge fund positions. ARC Document Solutions Inc (NYSE:ARC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARC is 37.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on ARC as the stock returned 55.6% since the end of Q3 (through 11/27) 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.