Did Hedge Funds Make The Right Call On Avantor, Inc. (AVTR) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Avantor, Inc. (NYSE:AVTR) based on that data and determine whether they were really smart about the stock.

Is Avantor, Inc. (NYSE:AVTR) worth your attention right now? Prominent investors were buying. The number of bullish hedge fund positions advanced by 1 recently. Our calculations also showed that AVTR 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). AVTR was in 29 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with AVTR holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Samuel Isaly of OrbiMed Advisors

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. Now we’re going to take a look at the key hedge fund action regarding Avantor, Inc. (NYSE:AVTR).

How have hedgies been trading Avantor, Inc. (NYSE:AVTR)?

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AVTR over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Viking Global held the most valuable stake in Avantor, Inc. (NYSE:AVTR), which was worth $125.5 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $73.9 million worth of shares. Maverick Capital, Third Point, and Millennium Management 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 Highside Global Management allocated the biggest weight to Avantor, Inc. (NYSE:AVTR), around 5.68% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, dishing out 4.84 percent of its 13F equity portfolio to AVTR.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Avantor, Inc. (NYSE:AVTR) headfirst. Highline Capital Management, managed by Jacob Doft, assembled the biggest position in Avantor, Inc. (NYSE:AVTR). Highline Capital Management had $19.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $11 million investment in the stock during the quarter. The following funds were also among the new AVTR investors: Zach Petrone’s Highside Global Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Doug Silverman and Alexander Klabin’s Senator Investment Group.

Let’s now take a look at hedge fund activity in other stocks similar to Avantor, Inc. (NYSE:AVTR). These stocks are Ceridian HCM Holding Inc. (NYSE:CDAY), Tenaris S.A. (NYSE:TS), Cloudflare, Inc. (NYSE:NET), and CyrusOne Inc (NASDAQ:CONE). This group of stocks’ market values match AVTR’s market value.

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As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $555 million. That figure was $521 million in AVTR’s case. CyrusOne Inc (NASDAQ:CONE) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 15 bullish hedge fund positions. Avantor, Inc. (NYSE:AVTR) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on AVTR as the stock returned 36.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.