Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Artisan Partners Asset Management Inc (NYSE:APAM).
Artisan Partners Asset Management Inc (NYSE:APAM) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that APAM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
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. Now let’s take a look at the fresh hedge fund action surrounding Artisan Partners Asset Management Inc (NYSE:APAM).
Hedge fund activity in Artisan Partners Asset Management Inc (NYSE:APAM)
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in APAM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Artisan Partners Asset Management Inc (NYSE:APAM), which was worth $118.2 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $47.8 million worth of shares. Citadel Investment Group, GLG Partners, and Royce & Associates 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 Sprott Asset Management allocated the biggest weight to Artisan Partners Asset Management Inc (NYSE:APAM), around 1.4% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to APAM.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Artisan Partners Asset Management Inc (NYSE:APAM). Arrowstreet Capital had $8.6 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $5.8 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Mika Toikka’s AlphaCrest Capital Management, and David Harding’s Winton Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Artisan Partners Asset Management Inc (NYSE:APAM) but similarly valued. These stocks are Box, Inc. (NYSE:BOX), Genesis Energy, L.P. (NYSE:GEL), ABM Industries, Inc. (NYSE:ABM), and National General Holdings Corp (NASDAQ:NGHC). This group of stocks’ market values match APAM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BOX | 35 | 545303 | 2 |
| GEL | 1 | 17341 | -1 |
| ABM | 12 | 62128 | -2 |
| NGHC | 16 | 238246 | -1 |
| Average | 16 | 215755 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $265 million in APAM’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Genesis Energy, L.P. (NYSE:GEL) is the least popular one with only 1 bullish hedge fund positions. Artisan Partners Asset Management Inc (NYSE:APAM) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately APAM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APAM investors were disappointed as the stock returned -37.2% 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.
