Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is PotlatchDeltic Corporation (NASDAQ:PCH) the right investment to pursue these days? Money managers are becoming more confident. The number of bullish hedge fund bets moved up by 7 lately. Our calculations also showed that PCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PCH was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with PCH holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Ray Dalio of Bridgewater Associates
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 analyze the key hedge fund action encompassing PotlatchDeltic Corporation (NASDAQ:PCH).
What have hedge funds been doing with PotlatchDeltic Corporation (NASDAQ:PCH)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 58% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PCH over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Southeastern Asset Management held the most valuable stake in PotlatchDeltic Corporation (NASDAQ:PCH), which was worth $162.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $108.3 million worth of shares. Citadel Investment Group, Ancora Advisors, and Fisher Asset Management 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 Intrepid Capital Management allocated the biggest weight to PotlatchDeltic Corporation (NASDAQ:PCH), around 2.93% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, dishing out 2.84 percent of its 13F equity portfolio to PCH.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, initiated the largest position in PotlatchDeltic Corporation (NASDAQ:PCH). Intrinsic Edge Capital had $7.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Donald Sussman’s Paloma Partners, and Ray Dalio’s Bridgewater Associates.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PotlatchDeltic Corporation (NASDAQ:PCH) but similarly valued. These stocks are Ryder System, Inc. (NYSE:R), Extended Stay America Inc (NASDAQ:STAY), Chesapeake Energy Corporation (NYSE:CHK), and Acadia Healthcare Company Inc (NASDAQ:ACHC). This group of stocks’ market caps match PCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| R | 21 | 356404 | 0 |
| STAY | 25 | 507430 | -3 |
| CHK | 17 | 65596 | -1 |
| ACHC | 20 | 574852 | 3 |
| Average | 20.75 | 376071 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $328 million in PCH’s case. Extended Stay America Inc (NASDAQ:STAY) is the most popular stock in this table. On the other hand Chesapeake Energy Corporation (NYSE:CHK) is the least popular one with only 17 bullish hedge fund positions. PotlatchDeltic Corporation (NASDAQ:PCH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PCH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PCH investors were disappointed as the stock returned 5.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
