Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Vulcan Materials Company (NYSE:VMC).
Vulcan Materials Company (NYSE:VMC) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that VMC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are tons of indicators investors employ to evaluate publicly traded companies. A pair of the less utilized indicators are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top money managers can outpace the broader indices by a significant amount (see the details here).
John Armitage of Egerton Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a glance at the recent hedge fund action regarding Vulcan Materials Company (NYSE:VMC).
How have hedgies been trading Vulcan Materials Company (NYSE:VMC)?
At the end of the third quarter, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards VMC over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Egerton Capital Limited was the largest shareholder of Vulcan Materials Company (NYSE:VMC), with a stake worth $535.8 million reported as of the end of September. Trailing Egerton Capital Limited was Adage Capital Management, which amassed a stake valued at $208.9 million. Eminence Capital, Alkeon Capital Management, and Palestra Capital 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 BlueDrive Global Investors allocated the biggest weight to Vulcan Materials Company (NYSE:VMC), around 9.69% of its 13F portfolio. Palestra Capital Management is also relatively very bullish on the stock, dishing out 4.4 percent of its 13F equity portfolio to VMC.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most outsized position in Vulcan Materials Company (NYSE:VMC). Marshall Wace had $13.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $6 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Louis Bacon’s Moore Global Investments, and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Vulcan Materials Company (NYSE:VMC). We will take a look at Hewlett Packard Enterprise Company (NYSE:HPE), Imperial Oil Limited (NYSE:IMO), Palo Alto Networks Inc (NYSE:PANW), and Expedia Inc (NASDAQ:EXPE). This group of stocks’ market caps are similar to VMC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HPE | 27 | 822361 | -1 |
| IMO | 11 | 42957 | -1 |
| PANW | 47 | 2862155 | 2 |
| EXPE | 33 | 2622304 | 0 |
| Average | 29.5 | 1587444 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1587 million. That figure was $1965 million in VMC’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Vulcan Materials Company (NYSE:VMC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on VMC as the stock returned 43.4% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
