We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Installed Building Products Inc (NYSE:IBP).
Installed Building Products Inc (NYSE:IBP) shareholders have witnessed an increase in hedge fund interest lately. Our calculations also showed that IBP 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a peek at the key hedge fund action encompassing Installed Building Products Inc (NYSE:IBP).
How are hedge funds trading Installed Building Products Inc (NYSE:IBP)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IBP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Ken Grossman and Glen Schneider’s SG Capital Management has the number one position in Installed Building Products Inc (NYSE:IBP), worth close to $36.1 million, corresponding to 7.1% of its total 13F portfolio. On SG Capital Management’s heels is Thomas E. Claugus of GMT Capital, with a $31.4 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Zachary Sternberg and Benjamin Stein’s Spruce House Investment Management, Richard Driehaus’s Driehaus Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to Installed Building Products Inc (NYSE:IBP), around 7.11% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, dishing out 1.21 percent of its 13F equity portfolio to IBP.
Now, key money managers were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, assembled the most valuable position in Installed Building Products Inc (NYSE:IBP). SG Capital Management had $36.1 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $6.1 million investment in the stock during the quarter. The following funds were also among the new IBP investors: Dmitry Balyasny’s Balyasny Asset Management, Donald Sussman’s Paloma Partners, and Anand Parekh’s Alyeska Investment Group.
Let’s go over hedge fund activity in other stocks similar to Installed Building Products Inc (NYSE:IBP). We will take a look at Compass Minerals International, Inc. (NYSE:CMP), Pretium Resources Inc (NYSE:PVG), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Focus Financial Partners Inc. (NASDAQ:FOCS). All of these stocks’ market caps resemble IBP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMP | 13 | 164740 | -2 |
| PVG | 24 | 120345 | 2 |
| ROIC | 21 | 99614 | 1 |
| FOCS | 12 | 47432 | 1 |
| Average | 17.5 | 108033 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $179 million in IBP’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 12 bullish hedge fund positions. Installed Building Products Inc (NYSE:IBP) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately IBP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IBP were disappointed as the stock returned -44.6% 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.
