Hedge Funds Are Dumping The Advisory Board Company (ABCO)

The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at The Advisory Board Company (NASDAQ:ABCO) from the perspective of those successful funds.

The Advisory Board Company (NASDAQ:ABCO) was in 10 hedge funds’ portfolios at the end of the third quarter of 2016. ABCO has seen a decrease in hedge fund sentiment lately. There were 15 hedge funds in our database with ABCO holdings at the end of the previous quarter. At the end of this article we will also compare ABCO to other stocks including Main Street Capital Corporation (NYSE:MAIN), GATX Corporation (NYSE:GATX), and 2U Inc (NASDAQ:TWOU) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, let’s review the recent action encompassing The Advisory Board Company (NASDAQ:ABCO).

Hedge fund activity in The Advisory Board Company (NASDAQ:ABCO)

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ABCO over the last 5 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in The Advisory Board Company (NASDAQ:ABCO), worth close to $47.8 million, comprising 0.3% of its total 13F portfolio. The second most bullish fund manager is Michael Doheny of Freshford Capital Management, with a $31.8 million position; 10% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish include Matthew A. Weatherbie’s Weatherbie Capital, Barry Lebovits and Joshua Kuntz’s Rivulet Capital and George Hall’s Clinton Group. We should note that Rivulet Capital is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because The Advisory Board Company (NASDAQ:ABCO) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that John Croghan and Richard Fradin’s Rail-Splitter Capital Management cashed in the biggest position of the 700 funds tracked by Insider Monkey, comprising an estimated $4.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $2.1 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to The Advisory Board Company (NASDAQ:ABCO). These stocks are Main Street Capital Corporation (NYSE:MAIN), GATX Corporation (NYSE:GATX), 2U Inc (NASDAQ:TWOU), and NovaGold Resources Inc. (USA) (NYSEAMEX:NG). This group of stocks’ market caps are closest to ABCO’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $128 million in ABCO’s case. NovaGold Resources Inc. (USA) (NYSEAMEX:NG) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. The Advisory Board Company (NASDAQ:ABCO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NG might be a better candidate to consider taking a long position in.

Disclosure: none.