We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Party City Holdco Inc (NYSE:PRTY).
Party City Holdco Inc (NYSE:PRTY) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2018. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Archrock, Inc. (NYSE:AROC), Stratasys, Ltd. (NASDAQ:SSYS), and 21Vianet Group Inc (NASDAQ:VNET) to gather more data points.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to view the recent hedge fund action encompassing Party City Holdco Inc (NYSE:PRTY).
How have hedgies been trading Party City Holdco Inc (NYSE:PRTY)?
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PRTY over the last 14 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Nantahala Capital Management was the largest shareholder of Party City Holdco Inc (NYSE:PRTY), with a stake worth $43.7 million reported as of the end of December. Trailing Nantahala Capital Management was Rubric Capital Management, which amassed a stake valued at $25.9 million. Citadel Investment Group, Tiger Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Party City Holdco Inc (NYSE:PRTY) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few money managers who sold off their full holdings last quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth close to $9.7 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund cut about $4.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Party City Holdco Inc (NYSE:PRTY) but similarly valued. These stocks are Archrock, Inc. (NYSE:AROC), Stratasys, Ltd. (NASDAQ:SSYS), 21Vianet Group Inc (NASDAQ:VNET), and Bluegreen Vacations Corporation (NYSE:BXG). This group of stocks’ market valuations are similar to PRTY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AROC | 20 | 41350 | 5 |
| SSYS | 14 | 97848 | 0 |
| VNET | 17 | 33841 | 4 |
| BXG | 2 | 3589 | 0 |
| Average | 13.25 | 44157 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $114 million in PRTY’s case. Archrock, Inc. (NYSE:AROC) is the most popular stock in this table. On the other hand Bluegreen Vacations Corporation (NYSE:BXG) is the least popular one with only 2 bullish hedge fund positions. Party City Holdco Inc (NYSE:PRTY) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PRTY wasn’t nearly as popular as these 15 stock and hedge funds that were betting on PRTY were disappointed as the stock returned -23% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
