Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards JELD-WEN Holding, Inc. (NYSE:JELD).
JELD-WEN Holding, Inc. (NYSE:JELD) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that JELD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action surrounding JELD-WEN Holding, Inc. (NYSE:JELD).
What does smart money think about JELD-WEN Holding, Inc. (NYSE:JELD)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in JELD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of JELD-WEN Holding, Inc. (NYSE:JELD), with a stake worth $148.2 million reported as of the end of September. Trailing Pzena Investment Management was Hound Partners, which amassed a stake valued at $65.4 million. Southpoint Capital Advisors, Arrowstreet Capital, and Renaissance Technologies 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 Hound Partners allocated the biggest weight to JELD-WEN Holding, Inc. (NYSE:JELD), around 4.16% of its 13F portfolio. Venator Capital Management is also relatively very bullish on the stock, dishing out 2.51 percent of its 13F equity portfolio to JELD.
Since JELD-WEN Holding, Inc. (NYSE:JELD) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their full holdings in the third quarter. At the top of the heap, William C. Martin’s Raging Capital Management cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising close to $10.5 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $0.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to JELD-WEN Holding, Inc. (NYSE:JELD). We will take a look at SJW Group (NYSE:SJW), Hillenbrand, Inc. (NYSE:HI), Stitch Fix, Inc. (NASDAQ:SFIX), and Sogou Inc. (NYSE:SOGO). All of these stocks’ market caps are closest to JELD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SJW | 19 | 175295 | 4 |
| HI | 22 | 122793 | 4 |
| SFIX | 23 | 124598 | -5 |
| SOGO | 4 | 5194 | -1 |
| Average | 17 | 106970 | 0.5 |
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 $107 million. That figure was $284 million in JELD’s case. Stitch Fix, Inc. (NASDAQ:SFIX) is the most popular stock in this table. On the other hand Sogou Inc. (NYSE:SOGO) is the least popular one with only 4 bullish hedge fund positions. JELD-WEN Holding, Inc. (NYSE:JELD) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on JELD as the stock returned 17.9% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
