Hedge Funds Are Nibbling On Compass Diversified (CODI)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 866 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article we look at what those investors think of Compass Diversified (NYSE:CODI).

Compass Diversified (NYSE:CODI) was in 5 hedge funds’ portfolios at the end of March. The all time high for this statistic is 7. CODI has seen an increase in hedge fund sentiment recently. There were 4 hedge funds in our database with CODI positions at the end of the fourth quarter. Our calculations also showed that CODI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. With all of this in mind we’re going to view the key hedge fund action regarding Compass Diversified (NYSE:CODI).

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

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the fourth quarter of 2020. On the other hand, there were a total of 4 hedge funds with a bullish position in CODI a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Royce & Associates was the largest shareholder of Compass Diversified (NYSE:CODI), with a stake worth $30.9 million reported as of the end of March. Trailing Royce & Associates was Arrowstreet Capital, which amassed a stake valued at $2 million. Two Sigma Advisors, Millennium Management, 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 Royce & Associates allocated the biggest weight to Compass Diversified (NYSE:CODI), around 0.21% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.0026 percent of its 13F equity portfolio to CODI.

As industrywide interest jumped, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Compass Diversified (NYSE:CODI). Arrowstreet Capital had $2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.8 million investment in the stock during the quarter.

Let’s now review hedge fund activity in other stocks similar to Compass Diversified (NYSE:CODI). These stocks are PGT Innovations Inc. (NYSE:PGTI), Dine Brands Global, Inc. (NYSE:DIN), Sixth Street Specialty Lending Inc (NYSE:TSLX), Zomedica Corp. (NYSE:ZOM), Ladder Capital Corp (NYSE:LADR), Guess’, Inc. (NYSE:GES), and Luminex Corporation (NASDAQ:LMNX). This group of stocks’ market valuations match CODI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $35 million in CODI’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand Zomedica Corp. (NYSE:ZOM) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Compass Diversified (NYSE:CODI) is even less popular than ZOM. Our overall hedge fund sentiment score for CODI is 27.4. 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 gained 17.4% in 2021 through June 18th but managed to beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on CODI, though not to the same extent, as the stock returned 9.9% since the end of March (through June 18th) and outperformed the market as well.

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