At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Domtar Corp (USA) (NYSE:UFS) ready to rally soon? Hedge funds are unambiguously selling. The number of long hedge fund positions that are disclosed in regulatory 13F filings decreased by 6 lately. UFS was in 12 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with UFS holdings at the end of the previous quarter. At the end of this article we will also compare UFS to other stocks including Washington Federal Inc. (NASDAQ:WAFD), Drew Industries, Inc. (NYSE:DW), and Whiting Petroleum Corp (NYSE:WLL) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, we’re going to take a gander at the fresh action surrounding Domtar Corp (USA) (NYSE:UFS).
What have hedge funds been doing with Domtar Corp (USA) (NYSE:UFS)?
At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in UFS heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in Domtar Corp (USA) (NYSE:UFS). Arrowstreet Capital has a $23.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Millennium Management, one of the 10 largest hedge funds in the world, holding a $9.3 million call position; less than 0.1% of its 13F portfolio is allocated to the position. Remaining hedge funds and institutional investors that hold long positions comprise Cliff Asness’s AQR Capital Management, Jim Simons’ Renaissance Technologies and Chuck Royce’s Royce & Associates. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as Domtar Corp (USA) (NYSE:UFS) has gone through a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Steve Cohen’s Point72 Asset Management dumped the biggest position of all the investors watched by Insider Monkey, comprising close to $3 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $1.3 million worth.
Let’s also examine hedge fund activity in other stocks similar to Domtar Corp (USA) (NYSE:UFS). We will take a look at Washington Federal Inc. (NASDAQ:WAFD), Drew Industries, Inc. (NYSE:DW), Whiting Petroleum Corp (NYSE:WLL), and The Cheesecake Factory Incorporated (NASDAQ:CAKE). All of these stocks’ market caps are similar to UFS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAFD | 13 | 32873 | 1 |
| DW | 29 | 170687 | 7 |
| WLL | 35 | 635862 | -6 |
| CAKE | 22 | 168378 | 3 |
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $57 million in UFS’s case. Whiting Petroleum Corp (NYSE:WLL) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Domtar Corp (USA) (NYSE:UFS) is even less popular than WAFD. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
