Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is AllianceBernstein Holding LP (NYSE:AB) a buy here? The best stock pickers are getting less bullish. The number of long hedge fund positions dropped by 2 lately. Our calculations also showed that AB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AB was in 8 hedge funds’ portfolios at the end of September. There were 10 hedge funds in our database with AB holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the new hedge fund action regarding AllianceBernstein Holding LP (NYSE:AB).
How have hedgies been trading AllianceBernstein Holding LP (NYSE:AB)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AB over the last 17 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in AllianceBernstein Holding LP (NYSE:AB), which was worth $11.5 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $3 million worth of shares. Dorset Management, McKinley Capital 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 Dorset Management allocated the biggest weight to AllianceBernstein Holding LP (NYSE:AB), around 0.62% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to AB.
Because AllianceBernstein Holding LP (NYSE:AB) has experienced falling interest from the smart money, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes in the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $1.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund dropped about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to AllianceBernstein Holding LP (NYSE:AB). We will take a look at Brady Corp (NYSE:BRC), Ameris Bancorp (NASDAQ:ABCB), EnerSys (NYSE:ENS), and American Assets Trust, Inc (NYSE:AAT). This group of stocks’ market caps are similar to AB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRC | 18 | 200005 | 5 |
| ABCB | 14 | 143727 | -2 |
| ENS | 17 | 90798 | 1 |
| AAT | 11 | 36996 | -4 |
| Average | 15 | 117882 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $19 million in AB’s case. Brady Corp (NYSE:BRC) is the most popular stock in this table. On the other hand American Assets Trust, Inc (NYSE:AAT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks AllianceBernstein Holding LP (NYSE:AB) is even less popular than AAT. Hedge funds dodged a bullet by taking a bearish stance towards AB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); AB investors were disappointed as the stock returned 0.9% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
