Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Ardagh Group S.A. (NYSE:ARD) to find out whether it was one of their high conviction long-term ideas.
Is Ardagh Group S.A. (NYSE:ARD) going to take off soon? Money managers are taking a bullish view. The number of long hedge fund bets increased by 2 recently. Our calculations also showed that ARD isn’t among the 30 most popular stocks among hedge funds. ARD was in 12 hedge funds’ portfolios at the end of the first quarter of 2019. There were 10 hedge funds in our database with ARD positions at the end of the previous quarter.
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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andy Redleaf of Whitebox Advisors
Let’s take a gander at the new hedge fund action regarding Ardagh Group S.A. (NYSE:ARD).
Hedge fund activity in Ardagh Group S.A. (NYSE:ARD)
At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in ARD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Ardagh Group S.A. (NYSE:ARD) was held by Canyon Capital Advisors, which reported holding $34.5 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $5 million position. Other investors bullish on the company included Whitebox Advisors, Millennium Management, and Marshall Wace LLP.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Whitebox Advisors, managed by Andy Redleaf, created the largest position in Ardagh Group S.A. (NYSE:ARD). Whitebox Advisors had $4.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.5 million position during the quarter. The only other fund with a new position in the stock is Noam Gottesman’s GLG Partners.
Let’s also examine hedge fund activity in other stocks similar to Ardagh Group S.A. (NYSE:ARD). We will take a look at Community Bank System, Inc. (NYSE:CBU), Peabody Energy Corporation (NYSE:BTU), Banco Macro SA (NYSE:BMA), and Kennedy-Wilson Holdings Inc (NYSE:KW). All of these stocks’ market caps are closest to ARD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBU | 8 | 16915 | -3 |
| BTU | 27 | 1577543 | -4 |
| BMA | 16 | 178559 | -1 |
| KW | 14 | 503807 | 1 |
| Average | 16.25 | 569206 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $569 million. That figure was $54 million in ARD’s case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 8 bullish hedge fund positions. Ardagh Group S.A. (NYSE:ARD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on ARD as the stock returned 25.2% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
