We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Amcor plc (NYSE:AMCR)? The smart money sentiment can provide an answer to this question.
Amcor plc (NYSE:AMCR) was in 10 hedge funds’ portfolios at the end of December. AMCR has experienced a decrease in hedge fund sentiment lately. There were 17 hedge funds in our database with AMCR positions at the end of the previous quarter. Our calculations also showed that AMCR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding Amcor plc (NYSE:AMCR).
How are hedge funds trading Amcor plc (NYSE:AMCR)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -41% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in AMCR a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Amcor plc (NYSE:AMCR), with a stake worth $20.2 million reported as of the end of September. Trailing Adage Capital Management was Citadel Investment Group, which amassed a stake valued at $9 million. Echo Street Capital Management, D E Shaw, and Cognios Capital 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 Cognios Capital allocated the biggest weight to Amcor plc (NYSE:AMCR), around 0.72% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to AMCR.
Judging by the fact that Amcor plc (NYSE:AMCR) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers that elected to cut their full holdings last quarter. Intriguingly, Israel Englander’s Millennium Management sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $33 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $7.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Amcor plc (NYSE:AMCR). These stocks are Nasdaq, Inc. (NASDAQ:NDAQ), Shinhan Financial Group Co., Ltd. (NYSE:SHG), AmerisourceBergen Corporation (NYSE:ABC), and Martin Marietta Materials, Inc. (NYSE:MLM). This group of stocks’ market valuations are closest to AMCR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NDAQ | 25 | 181346 | 0 |
| SHG | 3 | 8979 | -2 |
| ABC | 40 | 580579 | 2 |
| MLM | 52 | 2345404 | 9 |
| Average | 30 | 779077 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $48 million in AMCR’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 3 bullish hedge fund positions. Amcor plc (NYSE:AMCR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately AMCR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AMCR investors were disappointed as the stock returned -44.5% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
