Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Domtar Corporation (NYSE:UFS).
Domtar Corporation (NYSE:UFS) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that UFS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action encompassing Domtar Corporation (NYSE:UFS).
What does smart money think about Domtar Corporation (NYSE:UFS)?
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UFS over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in Domtar Corporation (NYSE:UFS), worth close to $48 million, accounting for 0.1% of its total 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $28.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Israel Englander’s Millennium Management, Noam Gottesman’s GLG Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Domtar Corporation (NYSE:UFS), around 0.63% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to UFS.
As one would reasonably expect, key money managers were leading the bulls’ herd. Jade Capital Advisors, managed by Robert Vincent McHugh, initiated the most outsized position in Domtar Corporation (NYSE:UFS). Jade Capital Advisors had $1.1 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Mika Toikka’s AlphaCrest Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Domtar Corporation (NYSE:UFS). We will take a look at Hillenbrand, Inc. (NYSE:HI), First Majestic Silver Corp (NYSE:AG), California Water Service Group (NYSE:CWT), and WESCO International, Inc. (NYSE:WCC). This group of stocks’ market caps resemble UFS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HI | 24 | 122068 | -1 |
| AG | 16 | 84709 | 1 |
| CWT | 20 | 43173 | 3 |
| WCC | 26 | 631182 | 6 |
| Average | 21.5 | 220283 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $147 million in UFS’s case. WESCO International, Inc. (NYSE:WCC) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 16 bullish hedge fund positions. Domtar Corporation (NYSE:UFS) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately UFS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UFS were disappointed as the stock returned -45.2% during the same time period 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
