We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by 14.5 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Pool Corporation (NASDAQ:POOL) investors should pay attention to an increase in hedge fund sentiment recently. POOL was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 22 hedge funds in our database with POOL holdings at the end of the previous quarter. Our calculations also showed that POOL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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.
Ken Fisher of Fisher Asset 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s take a glance at the fresh hedge fund action surrounding Pool Corporation (NASDAQ:POOL).
How have hedgies been trading Pool Corporation (NASDAQ:POOL)?
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in POOL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Pool Corporation (NASDAQ:POOL) was held by Fisher Asset Management, which reported holding $96.1 million worth of stock at the end of September. It was followed by Impax Asset Management with a $80.9 million position. Other investors bullish on the company included GLG Partners, Chilton Investment Company, and Royce & Associates. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Pool Corporation (NASDAQ:POOL), around 2.04% of its 13F portfolio. Brant Point Investment Management is also relatively very bullish on the stock, dishing out 1.33 percent of its 13F equity portfolio to POOL.
Consequently, specific money managers were leading the bulls’ herd. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, created the most valuable position in Pool Corporation (NASDAQ:POOL). Waratah Capital Advisors had $20.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also made a $9.8 million investment in the stock during the quarter. The following funds were also among the new POOL investors: Nick Thakore’s Diametric Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pool Corporation (NASDAQ:POOL) but similarly valued. These stocks are Vedanta Ltd (NYSE:VEDL), Bunge Limited (NYSE:BG), Zayo Group Holdings Inc (NYSE:ZAYO), and Alaska Air Group, Inc. (NYSE:ALK). This group of stocks’ market valuations resemble POOL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VEDL | 10 | 55913 | 2 |
| BG | 34 | 579574 | 3 |
| ZAYO | 50 | 1997124 | -9 |
| ALK | 31 | 486037 | 9 |
| Average | 31.25 | 779662 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $780 million. That figure was $402 million in POOL’s case. Zayo Group Holdings Inc (NYSE:ZAYO) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 10 bullish hedge fund positions. Pool Corporation (NASDAQ:POOL) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on POOL as the stock returned 44.5% in 2019 and outclassed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
