We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Installed Building Products Inc (NYSE:IBP).
Installed Building Products Inc (NYSE:IBP) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of June. At the end of this article we will also compare IBP to other stocks including Regenxbio Inc (NASDAQ:RGNX), Uniti Group Inc. (NASDAQ:UNIT), and McDermott International, Inc. (NYSE:MDR) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action regarding Installed Building Products Inc (NYSE:IBP).
How are hedge funds trading Installed Building Products Inc (NYSE:IBP)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in IBP a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Zachary Sternberg and Benjamin Stein’s Spruce House Investment Management has the number one position in Installed Building Products Inc (NYSE:IBP), worth close to $165.8 million, comprising 6.2% of its total 13F portfolio. The second most bullish fund manager is GMT Capital, led by Thomas E. Claugus, holding a $29.2 million position; 1% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions include Israel Englander’s Millennium Management, Richard Driehaus’s Driehaus Capital and Ken Fisher’s Fisher Asset Management.
Judging by the fact that Installed Building Products Inc (NYSE:IBP) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Charles Clough’s Clough Capital Partners said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $2.2 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund dropped about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Installed Building Products Inc (NYSE:IBP) but similarly valued. We will take a look at Regenxbio Inc (NASDAQ:RGNX), Uniti Group Inc. (NASDAQ:UNIT), McDermott International, Inc. (NYSE:MDR), and MaxLinear, Inc. (NYSE:MXL). All of these stocks’ market caps are closest to IBP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RGNX | 14 | 219288 | -5 |
| UNIT | 21 | 184179 | 0 |
| MDR | 22 | 289410 | 0 |
| MXL | 7 | 18569 | 1 |
| Average | 16 | 177862 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $213 million in IBP’s case. McDermott International, Inc. (NYSE:MDR) is the most popular stock in this table. On the other hand MaxLinear, Inc. (NYSE:MXL) is the least popular one with only 7 bullish hedge fund positions. Installed Building Products Inc (NYSE:IBP) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately IBP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IBP investors were disappointed as the stock returned -3.2% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
