“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards YRC Worldwide, Inc. (NASDAQ:YRCW).
Is YRC Worldwide, Inc. (NASDAQ:YRCW) a worthy investment today? The best stock pickers are taking a pessimistic view. The number of long hedge fund positions were trimmed by 2 lately. Our calculations also showed that YRCW 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.
John Overdeck of Two Sigma Advisors
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. Keeping this in mind let’s take a peek at the key hedge fund action encompassing YRC Worldwide, Inc. (NASDAQ:YRCW).
What does smart money think about YRC Worldwide, Inc. (NASDAQ:YRCW)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in YRCW a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in YRC Worldwide, Inc. (NASDAQ:YRCW), worth close to $2.9 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Ron Gutfleish of Elm Ridge Capital, with a $1.7 million position; 1.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions comprise John Overdeck and David Siegel’s Two Sigma Advisors, Ken Griffin’s Citadel Investment Group and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to YRC Worldwide, Inc. (NASDAQ:YRCW), around 1.63% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0025 percent of its 13F equity portfolio to YRCW.
Due to the fact that YRC Worldwide, Inc. (NASDAQ:YRCW) has experienced falling interest from the smart money, it’s safe to say that there were a few money managers who were dropping their entire stakes heading into Q4. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at close to $0.2 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $0.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as YRC Worldwide, Inc. (NASDAQ:YRCW) but similarly valued. These stocks are Blue Apron Holdings, Inc. (NYSE:APRN), Hallador Energy Company (NASDAQ:HNRG), Jounce Therapeutics, Inc. (NASDAQ:JNCE), and SB Financial Group, Inc. (NASDAQ:SBFG). This group of stocks’ market valuations are closest to YRCW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APRN | 8 | 14612 | 3 |
| HNRG | 9 | 3911 | 0 |
| JNCE | 9 | 2064 | -1 |
| SBFG | 3 | 11334 | 0 |
| Average | 7.25 | 7980 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $6 million in YRCW’s case. Hallador Energy Company (NASDAQ:HNRG) is the most popular stock in this table. On the other hand SB Financial Group, Inc. (NASDAQ:SBFG) is the least popular one with only 3 bullish hedge fund positions. YRC Worldwide, Inc. (NASDAQ:YRCW) 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 YRCW as the stock returned 15.6% 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.
