Were Hedge Funds Right About Dumping Atkore International Group Inc. (ATKR)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Atkore International Group Inc. (NYSE:ATKR) and determine whether hedge funds had an edge regarding this stock.

Atkore International Group Inc. (NYSE:ATKR) investors should pay attention to a decrease in hedge fund interest lately. ATKR was in 13 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with ATKR positions at the end of the previous quarter. Our calculations also showed that ATKR 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).

Video: 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 S&P 500 ETFs by more than 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. 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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 18 cities with the best air quality to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action encompassing Atkore International Group Inc. (NYSE:ATKR).

How have hedgies been trading Atkore International Group Inc. (NYSE:ATKR)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATKR over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Atkore International Group Inc. (NYSE:ATKR). Arrowstreet Capital has a $15.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is GLG Partners, managed by Noam Gottesman, which holds a $12.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism include Cliff Asness’s AQR Capital Management, Len Kipp and Xavier Majic’s Maple Rock Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to Atkore International Group Inc. (NYSE:ATKR), around 2.03% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, earmarking 0.31 percent of its 13F equity portfolio to ATKR.

Since Atkore International Group Inc. (NYSE:ATKR) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that elected to cut their positions entirely last quarter. Intriguingly, Paul Tudor Jones’s Tudor Investment Corp said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, valued at about $1.5 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dropped about $1.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 10 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Atkore International Group Inc. (NYSE:ATKR) but similarly valued. We will take a look at The St. Joe Company (NYSE:JOE), The Liberty Braves Group (NASDAQ:BATRA), CNX Resources Corporation (NYSE:CNX), and Broadmark Realty Capital Inc. (NYSE:BRMK). This group of stocks’ market valuations are similar to ATKR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $60 million in ATKR’s case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand The St. Joe Company (NYSE:JOE) is the least popular one with only 11 bullish hedge fund positions. Atkore International Group Inc. (NYSE:ATKR) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on ATKR, though not to the same extent, as the stock returned 22.7% during the second quarter and outperformed the market.

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