Was The Smart Money Wrong About Loading Up On Acuity Brands, Inc. (AYI)?

In this article we will take a look at whether hedge funds think Acuity Brands, Inc. (NYSE:AYI) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Acuity Brands, Inc. (NYSE:AYI) has experienced an increase in hedge fund interest in recent months. Acuity Brands, Inc. (NYSE:AYI) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 31 hedge funds in our database with AYI holdings at the end of March. Our calculations also showed that AYI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Blood of Generation Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the fresh hedge fund action regarding Acuity Brands, Inc. (NYSE:AYI).

What have hedge funds been doing with Acuity Brands, Inc. (NYSE:AYI)?

At the end of the second quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in AYI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Acuity Brands, Inc. (NYSE:AYI) was held by Generation Investment Management, which reported holding $255.6 million worth of stock at the end of June. It was followed by Renaissance Technologies with a $88.5 million position. Other investors bullish on the company included AQR Capital Management, Paradice Investment Management, and Millennium Management. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to Acuity Brands, Inc. (NYSE:AYI), around 4.29% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, designating 3.05 percent of its 13F equity portfolio to AYI.

Consequently, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Acuity Brands, Inc. (NYSE:AYI). Arrowstreet Capital had $28 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $24.3 million position during the quarter. The other funds with new positions in the stock are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Michael Cowley’s Sandbar Asset Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s also examine hedge fund activity in other stocks similar to Acuity Brands, Inc. (NYSE:AYI). We will take a look at TopBuild Corp (NYSE:BLD), Nexstar Media Group, Inc. (NASDAQ:NXST), InVitae Corporation (NYSE:NVTA), frontdoor, inc. (NASDAQ:FTDR), LendingTree, Inc (NASDAQ:TREE), Hexcel Corporation (NYSE:HXL), and SL Green Realty Corp (NYSE:SLG). This group of stocks’ market values match AYI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $650 million in AYI’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand LendingTree, Inc (NASDAQ:TREE) is the least popular one with only 15 bullish hedge fund positions. Acuity Brands, Inc. (NYSE:AYI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AYI is 82.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately AYI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AYI were disappointed as the stock returned -6.6% since the end of June (through 10/30) 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.