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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Builders FirstSource, Inc. (NASDAQ:BLDR), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Builders FirstSource, Inc. (NASDAQ:BLDR) shareholders have witnessed an increase in support from the world’s most elite money managers of late. BLDR was in 40 hedge funds’ portfolios at the end of December. There were 39 hedge funds in our database with BLDR positions at the end of the previous quarter. Our calculations also showed that BLDR 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).
If you’d ask most stock holders, hedge funds are assumed to be underperforming, old financial tools of years past. While there are over 8000 funds with their doors open at the moment, Our researchers look at the bigwigs of this group, about 850 funds. These money managers have their hands on most of the hedge fund industry’s total capital, and by tracking their finest equity investments, Insider Monkey has revealed many investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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. Now we’re going to analyze the fresh hedge fund action encompassing Builders FirstSource, Inc. (NASDAQ:BLDR).
Hedge fund activity in Builders FirstSource, Inc. (NASDAQ:BLDR)
Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the third quarter of 2019. On the other hand, there were a total of 33 hedge funds with a bullish position in BLDR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the most valuable position in Builders FirstSource, Inc. (NASDAQ:BLDR). Renaissance Technologies has a $104.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $56.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Noam Gottesman’s GLG Partners, Jed Nussdorf’s Soapstone Capital and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Soapstone Capital allocated the biggest weight to Builders FirstSource, Inc. (NASDAQ:BLDR), around 24.63% of its 13F portfolio. Stadium Capital Management is also relatively very bullish on the stock, designating 12.92 percent of its 13F equity portfolio to BLDR.
As industrywide interest jumped, specific money managers were breaking ground themselves. Samlyn Capital, managed by Robert Pohly, initiated the most valuable position in Builders FirstSource, Inc. (NASDAQ:BLDR). Samlyn Capital had $17.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $2 million position during the quarter. The other funds with brand new BLDR positions are Bruce Kovner’s Caxton Associates LP, Jinghua Yan’s TwinBeech Capital, and Steve Cohen’s Point72 Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Builders FirstSource, Inc. (NASDAQ:BLDR) but similarly valued. We will take a look at Advanced Disposal Services, Inc. (NYSE:ADSW), Hilton Grand Vacations Inc. (NYSE:HGV), Cannae Holdings, Inc. (NYSE:CNNE), and Element Solutions Inc (NYSE:ESI). This group of stocks’ market values resemble BLDR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADSW | 22 | 655764 | -2 |
| HGV | 46 | 1039360 | 3 |
| CNNE | 31 | 376691 | 12 |
| ESI | 37 | 736292 | 9 |
| Average | 34 | 702027 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $702 million. That figure was $535 million in BLDR’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Advanced Disposal Services, Inc. (NYSE:ADSW) is the least popular one with only 22 bullish hedge fund positions. Builders FirstSource, Inc. (NASDAQ:BLDR) 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 BLDR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BLDR were disappointed as the stock returned -42.4% 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.
