Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

2019 Review: Top Hedge Fund Stocks vs. Acuity Brands, Inc. (AYI)

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 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Acuity Brands, Inc. (NYSE:AYI).

Is Acuity Brands, Inc. (NYSE:AYI) undervalued? Hedge funds are becoming more confident. The number of long hedge fund bets increased by 3 recently. Our calculations also showed that AYI 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). AYI was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with AYI positions at the end of the previous quarter.

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.

David Blood

David Blood of Generation Investment 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. With all of this in mind let’s take a peek at the key hedge fund action regarding Acuity Brands, Inc. (NYSE:AYI).

What does smart money think about Acuity Brands, Inc. (NYSE:AYI)?

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 13% from the second quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in AYI 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.

More specifically, Generation Investment Management was the largest shareholder of Acuity Brands, Inc. (NYSE:AYI), with a stake worth $353.1 million reported as of the end of September. Trailing Generation Investment Management was International Value Advisers, which amassed a stake valued at $190.8 million. Renaissance Technologies, Citadel Investment Group, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position International Value Advisers allocated the biggest weight to Acuity Brands, Inc. (NYSE:AYI), around 7.07% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, earmarking 2.81 percent of its 13F equity portfolio to AYI.

Now, specific money managers were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, initiated the biggest position in Acuity Brands, Inc. (NYSE:AYI). Carlson Capital had $3.4 million invested in the company at the end of the quarter. Larry Foley and Paul Farrell’s Bronson Point Partners also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Brandon Haley’s Holocene Advisors, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Acuity Brands, Inc. (NYSE:AYI) but similarly valued. These stocks are Quanta Services Inc (NYSE:PWR), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), The Hanover Insurance Group, Inc. (NYSE:THG), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks’ market valuations are closest to AYI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PWR 30 881523 1
LECO 16 256053 -6
THG 25 272433 5
EXEL 27 681846 6
Average 24.5 522964 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $523 million. That figure was $898 million in AYI’s case. Quanta Services Inc (NYSE:PWR) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 16 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. 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 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. Unfortunately AYI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AYI were disappointed as the stock returned 20.5% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
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.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.