Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Advanced Drainage Systems, Inc. (NYSE:WMS).
Advanced Drainage Systems, Inc. (NYSE:WMS) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. WMS was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with WMS holdings at the end of the previous quarter. Our calculations also showed that WMS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
At the moment there are numerous methods stock traders employ to size up publicly traded companies. A duo of the less utilized methods are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can outperform the S&P 500 by a healthy amount (see the details here).
Joel Greenblatt of Gotham Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the key hedge fund action encompassing Advanced Drainage Systems, Inc. (NYSE:WMS).
How have hedgies been trading Advanced Drainage Systems, Inc. (NYSE:WMS)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 41% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WMS over the last 17 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Stockbridge Partners was the largest shareholder of Advanced Drainage Systems, Inc. (NYSE:WMS), with a stake worth $121.2 million reported as of the end of September. Trailing Stockbridge Partners was Impax Asset Management, which amassed a stake valued at $95 million. ACK Asset Management, Millennium Management, and D E Shaw 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 ACK Asset Management allocated the biggest weight to Advanced Drainage Systems, Inc. (NYSE:WMS), around 8.25% of its portfolio. Stockbridge Partners is also relatively very bullish on the stock, earmarking 4.81 percent of its 13F equity portfolio to WMS.
As industrywide interest jumped, some big names have jumped into Advanced Drainage Systems, Inc. (NYSE:WMS) headfirst. Millennium Management, managed by Israel Englander, assembled the largest position in Advanced Drainage Systems, Inc. (NYSE:WMS). Millennium Management had $20.7 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $4.9 million position during the quarter. The other funds with new positions in the stock are Matt Diserio and Disque Deane Jr.’s Water Asset Management, Joel Greenblatt’s Gotham Asset Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Advanced Drainage Systems, Inc. (NYSE:WMS). We will take a look at Mimecast Limited (NASDAQ:MIME), Washington Real Estate Investment Trust (NYSE:WRE), Stepan Company (NYSE:SCL), and Invesco Mortgage Capital Inc (NYSE:IVR). This group of stocks’ market values are closest to WMS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MIME | 36 | 669132 | 10 |
| WRE | 5 | 115764 | -1 |
| SCL | 14 | 61752 | 3 |
| IVR | 17 | 85348 | 6 |
| Average | 18 | 232999 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $336 million in WMS’s case. Mimecast Limited (NASDAQ:MIME) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 5 bullish hedge fund positions. Advanced Drainage Systems, Inc. (NYSE:WMS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on WMS as the stock returned 18.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
