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. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Summit Materials Inc (NYSE:SUM).
Summit Materials Inc (NYSE:SUM) has seen an increase in activity from the world’s largest hedge funds of late. SUM was in 35 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with SUM positions at the end of the previous quarter. Our calculations also showed that SUM 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.
Phill Gross of Adage 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. Now let’s take a gander at the new hedge fund action surrounding Summit Materials Inc (NYSE:SUM).
How are hedge funds trading Summit Materials Inc (NYSE:SUM)?
Heading into the first quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SUM over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Summit Materials Inc (NYSE:SUM) was held by Adage Capital Management, which reported holding $82.8 million worth of stock at the end of September. It was followed by Millennium Management with a $70.4 million position. Other investors bullish on the company included GMT Capital, Citadel Investment Group, and Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position Red Cedar Management allocated the biggest weight to Summit Materials Inc (NYSE:SUM), around 6.25% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 2.35 percent of its 13F equity portfolio to SUM.
Consequently, key hedge funds have jumped into Summit Materials Inc (NYSE:SUM) headfirst. Renaissance Technologies, founded by Jim Simons, created the largest position in Summit Materials Inc (NYSE:SUM). Renaissance Technologies had $6.9 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also initiated a $6.1 million position during the quarter. The following funds were also among the new SUM investors: Ira Unschuld’s Brant Point Investment Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to Summit Materials Inc (NYSE:SUM). We will take a look at LCI Industries (NYSE:LCII), Cronos Group Inc. (NASDAQ:CRON), Atlantica Yield plc (NASDAQ:AY), and Fox Factory Holding Corp (NASDAQ:FOXF). This group of stocks’ market valuations are similar to SUM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LCII | 17 | 127058 | 1 |
| CRON | 10 | 90321 | -2 |
| AY | 16 | 122712 | -3 |
| FOXF | 13 | 15755 | -1 |
| Average | 14 | 88962 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $454 million in SUM’s case. LCI Industries (NYSE:LCII) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Summit Materials Inc (NYSE:SUM) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately SUM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SUM were disappointed as the stock returned -46.6% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
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.
