The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Construction Partners, Inc. (NASDAQ:ROAD).
Is Construction Partners, Inc. (NASDAQ:ROAD) a buy here? The smart money is becoming less hopeful. The number of long hedge fund positions retreated by 4 lately. Our calculations also showed that ROAD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ROAD was in 6 hedge funds’ portfolios at the end of March. There were 10 hedge funds in our database with ROAD holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Richard Driehaus of Driehaus Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the recent hedge fund action encompassing Construction Partners, Inc. (NASDAQ:ROAD).
How have hedgies been trading Construction Partners, Inc. (NASDAQ:ROAD)?
Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in ROAD 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.
Among these funds, Royce & Associates held the most valuable stake in Construction Partners, Inc. (NASDAQ:ROAD), which was worth $18 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.4 million worth of shares. Winton Capital Management, Driehaus Capital, and AQR 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 Royce & Associates allocated the biggest weight to Construction Partners, Inc. (NASDAQ:ROAD), around 0.25% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to ROAD.
Since Construction Partners, Inc. (NASDAQ:ROAD) has experienced declining sentiment from the smart money, logic holds that there is a sect of money managers that slashed their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of the 750 funds tracked by Insider Monkey, valued at about $0.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dumped about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Construction Partners, Inc. (NASDAQ:ROAD). These stocks are Cactus, Inc. (NYSE:WHD), Office Depot Inc (NASDAQ:ODP), Scholastic Corp (NASDAQ:SCHL), and Axonics Modulation Technologies, Inc. (NASDAQ:AXNX). All of these stocks’ market caps match ROAD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WHD | 18 | 99361 | 1 |
| ODP | 17 | 70351 | 1 |
| SCHL | 11 | 44442 | -4 |
| AXNX | 22 | 282163 | -1 |
| Average | 17 | 124079 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $22 million in ROAD’s case. Axonics Modulation Technologies, Inc. (NASDAQ:AXNX) is the most popular stock in this table. On the other hand Scholastic Corp (NASDAQ:SCHL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Construction Partners, Inc. (NASDAQ:ROAD) is even less popular than SCHL. Hedge funds dodged a bullet by taking a bearish stance towards ROAD. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately ROAD wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ROAD investors were disappointed as the stock returned 8.9% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
