Hedge Funds Are Crazy About Acuity Brands, Inc. (AYI)

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 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 Acuity Brands, Inc. (NYSE:AYI).

Is Acuity Brands, Inc. (NYSE:AYI) a bargain? The best stock pickers were taking an optimistic view. The number of bullish hedge fund bets improved by 2 lately. Acuity Brands, Inc. (NYSE:AYI) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistic is 38. Our calculations also showed that AYI isn’t among the 30 most popular stocks among hedge funds (click 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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller of Miller Value Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s go over the latest hedge fund action surrounding Acuity Brands, Inc. (NYSE:AYI).

Do Hedge Funds Think AYI Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in AYI a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Generation Investment Management was the largest shareholder of Acuity Brands, Inc. (NYSE:AYI), with a stake worth $322.9 million reported as of the end of June. Trailing Generation Investment Management was Paradice Investment Management, which amassed a stake valued at $101.5 million. Miller Value Partners, Citadel Investment Group, and Interval Partners 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 Paradice Investment Management allocated the biggest weight to Acuity Brands, Inc. (NYSE:AYI), around 4.71% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, designating 2.24 percent of its 13F equity portfolio to AYI.

As industrywide interest jumped, some big names have jumped into Acuity Brands, Inc. (NYSE:AYI) headfirst. Citadel Investment Group, managed by Ken Griffin, established the biggest position in Acuity Brands, Inc. (NYSE:AYI). Citadel Investment Group had $54.9 million invested in the company at the end of the quarter. Anthony Joseph Vaccarino’s North Fourth Asset Management also initiated a $6.1 million position during the quarter. The following funds were also among the new AYI investors: D. E. Shaw’s D E Shaw, Qing Li’s Sciencast Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Acuity Brands, Inc. (NYSE:AYI) but similarly valued. These stocks are Prosperity Bancshares, Inc. (NYSE:PB), ShockWave Medical, Inc. (NASDAQ:SWAV), Tetra Tech, Inc. (NASDAQ:TTEK), Choice Hotels International, Inc. (NYSE:CHH), SLM Corp (NASDAQ:SLM), Redfin Corporation (NASDAQ:RDFN), and BRP Inc. (NASDAQ:DOOO). This group of stocks’ market valuations resemble AYI’s market valuation.

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As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $794 million in AYI’s case. ShockWave Medical, Inc. (NASDAQ:SWAV) is the most popular stock in this table. On the other hand Choice Hotels International, Inc. (NYSE:CHH) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Acuity Brands, Inc. (NYSE:AYI) is more popular among hedge funds. Our overall hedge fund sentiment score for AYI is 83.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24.9% in 2021 through October 15th but still managed to beat the market by 4.5 percentage points. Hedge funds were also right about betting on AYI as the stock returned 11.2% since the end of June (through 10/15) 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.

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