Hedge Funds Are Done Buying AECOM (ACM)?

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 second 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 5 years and analyze what the smart money thinks of AECOM (NYSE:ACM) based on that data and determine whether they were really smart about the stock.

Is AECOM (NYSE:ACM) going to take off soon? The best stock pickers were cutting their exposure. The number of bullish hedge fund positions shrunk by 1 in recent months. AECOM (NYSE:ACM) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. Our calculations also showed that ACM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 39 hedge funds in our database with ACM positions at the end of the first quarter.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Jeffrey Smith of Starboard Value LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to analyze the key hedge fund action regarding AECOM (NYSE:ACM).

What does smart money think about AECOM (NYSE:ACM)?

At second quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ACM over the last 20 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Starboard Value LP held the most valuable stake in AECOM (NYSE:ACM), which was worth $224.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $118.9 million worth of shares. TIG Advisors, Blue Harbour Group, and Citadel Investment Group 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 Blue Harbour Group allocated the biggest weight to AECOM (NYSE:ACM), around 12.62% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, dishing out 8 percent of its 13F equity portfolio to ACM.

Due to the fact that AECOM (NYSE:ACM) has faced bearish sentiment from the smart money, logic holds that there were a few fund managers that decided to sell off their positions entirely in the second quarter. Interestingly, Zilvinas Mecelis’s Covalis Capital said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, worth an estimated $9.7 million in stock. Asad Rahman and Aman Kapadia’s fund, Akaris Global Partners, also cut its stock, about $8.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to AECOM (NYSE:ACM). We will take a look at Owens Corning (NYSE:OC), Vroom, Inc. (NASDAQ:VRM), ANGI Homeservices Inc (NASDAQ:ANGI), Manhattan Associates, Inc. (NASDAQ:MANH), Canopy Growth Corporation (NYSE:CGC), Post Holdings Inc (NYSE:POST), and Five Below Inc (NASDAQ:FIVE). This group of stocks’ market values resemble ACM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $583 million. That figure was $664 million in ACM’s case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 11 bullish hedge fund positions. AECOM (NYSE:ACM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ACM is 69.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately ACM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ACM were disappointed as the stock returned 5.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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