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 Acushnet Holdings Corp. (NYSE:GOLF) and determine whether hedge funds had an edge regarding this stock.
Is Acushnet Holdings Corp. (NYSE:GOLF) a buy, sell, or hold? Hedge funds were taking a pessimistic view. The number of bullish hedge fund positions dropped by 4 recently. Our calculations also showed that GOLF 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 check out the latest hedge fund action surrounding Acushnet Holdings Corp. (NYSE:GOLF).
What have hedge funds been doing with Acushnet Holdings Corp. (NYSE:GOLF)?
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GOLF over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Acushnet Holdings Corp. (NYSE:GOLF), with a stake worth $3.5 million reported as of the end of September. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $2.6 million. Renaissance Technologies, Winton Capital Management, and Arrowstreet Capital 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 Zebra Capital Management allocated the biggest weight to Acushnet Holdings Corp. (NYSE:GOLF), around 0.68% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.42 percent of its 13F equity portfolio to GOLF.
Judging by the fact that Acushnet Holdings Corp. (NYSE:GOLF) has faced falling interest from the smart money, logic holds that there were a few funds that elected to cut their entire stakes heading into Q4. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest position of all the hedgies watched by Insider Monkey, valued at close to $5.3 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund dumped about $0.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Acushnet Holdings Corp. (NYSE:GOLF) but similarly valued. These stocks are Park Hotels & Resorts Inc. (NYSE:PK), IBERIABANK Corporation (NASDAQ:IBKC), Frontline Ltd (NYSE:FRO), and Alarm.com Holdings Inc (NASDAQ:ALRM). All of these stocks’ market caps are closest to GOLF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PK | 26 | 162562 | 13 |
| IBKC | 30 | 129219 | -2 |
| FRO | 24 | 116530 | 7 |
| ALRM | 23 | 153195 | -5 |
| Average | 25.75 | 140377 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $14 million in GOLF’s case. IBERIABANK Corporation (NASDAQ:IBKC) is the most popular stock in this table. On the other hand Alarm.com Holdings Inc (NASDAQ:ALRM) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Acushnet Holdings Corp. (NYSE:GOLF) is even less popular than ALRM. Hedge funds clearly dropped the ball on GOLF as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on GOLF as the stock returned 35.9% in the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
