Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Arcosa, Inc. (NYSE:ACA) changed recently.
Arcosa, Inc. (NYSE:ACA) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that ACA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Donald Yacktman of Yacktman Asset Management
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Arcosa, Inc. (NYSE:ACA).
What does smart money think about Arcosa, Inc. (NYSE:ACA)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ACA over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, ValueAct Capital held the most valuable stake in Arcosa, Inc. (NYSE:ACA), which was worth $54 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $39.8 million worth of shares. Yacktman Asset Management, Citadel Investment Group, and Driehaus 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 Harvey Partners allocated the biggest weight to Arcosa, Inc. (NYSE:ACA), around 6.12% of its 13F portfolio. Parian Global Management is also relatively very bullish on the stock, earmarking 3.68 percent of its 13F equity portfolio to ACA.
Now, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Arcosa, Inc. (NYSE:ACA). Arrowstreet Capital had $1.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.4 million position during the quarter. The following funds were also among the new ACA investors: Renaissance Technologies, Donald Sussman’s Paloma Partners, and John Zaro’s Bourgeon Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Arcosa, Inc. (NYSE:ACA) but similarly valued. We will take a look at Focus Financial Partners Inc. (NASDAQ:FOCS), Fresh Del Monte Produce Inc (NYSE:FDP), Global Net Lease, Inc. (NYSE:GNL), and Dillard’s, Inc. (NYSE:DDS). This group of stocks’ market valuations resemble ACA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FOCS | 10 | 43591 | 1 |
| FDP | 11 | 53395 | 0 |
| GNL | 12 | 74097 | 4 |
| DDS | 20 | 266166 | 0 |
| Average | 13.25 | 109312 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $235 million in ACA’s case. Dillard’s, Inc. (NYSE:DDS) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Arcosa, Inc. (NYSE:ACA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ACA as the stock returned 64.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
