Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like PGT Innovations Inc. (NYSE:PGTI).
Is PGT Innovations Inc. (NYSE:PGTI) a buy, sell, or hold? The best stock pickers are getting less bullish. The number of long hedge fund positions were cut by 2 recently. Our calculations also showed that PGTI isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s check out the new hedge fund action encompassing PGT Innovations Inc. (NYSE:PGTI).
How are hedge funds trading PGT Innovations Inc. (NYSE:PGTI)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PGTI over the last 14 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the biggest position in PGT Innovations Inc. (NYSE:PGTI). Renaissance Technologies has a $63.2 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Broad Bay Capital, managed by Richard Scott Greeder, which holds a $20.4 million position; 11.3% of its 13F portfolio is allocated to the company. Other peers that are bullish comprise John Overdeck and David Siegel’s Two Sigma Advisors, Richard Driehaus’s Driehaus Capital and Chuck Royce’s Royce & Associates.
Since PGT Innovations Inc. (NYSE:PGTI) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of fund managers who sold off their full holdings in the third quarter. Intriguingly, Benjamin A. Smith’s Laurion Capital Management sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $6.3 million in stock. George Soros’s fund, Soros Fund Management, also said goodbye to its stock, about $2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to PGT Innovations Inc. (NYSE:PGTI). These stocks are Amphastar Pharmaceuticals Inc (NASDAQ:AMPH), Garrett Motion Inc. (NYSE:GTX), GasLog Partners LP (NYSE:GLOP), and Materion Corp (NYSE:MTRN). This group of stocks’ market values resemble PGTI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMPH | 8 | 11805 | 3 |
| GTX | 13 | 213936 | 8 |
| GLOP | 7 | 24080 | 2 |
| MTRN | 17 | 81722 | 4 |
| Average | 11.25 | 82886 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $113 million in PGTI’s case. Materion Corp (NYSE:MTRN) is the most popular stock in this table. On the other hand GasLog Partners LP (NYSE:GLOP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks PGT Innovations Inc. (NYSE:PGTI) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PGTI wasn’t nearly as popular as these 15 stock and hedge funds that were betting on PGTI were disappointed as the stock returned -9.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
