Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Arch Resources, Inc. (NYSE:ARCH).
Arch Resources, Inc. (NYSE:ARCH) investors should be aware of an increase in enthusiasm from smart money of late. Arch Resources, Inc. (NYSE:ARCH) was in 25 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 42. There were 24 hedge funds in our database with ARCH holdings at the end of December. Our calculations also showed that ARCH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the 21st century investor’s toolkit there are a lot of tools stock market investors can use to appraise stocks. A pair of the most under-the-radar tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best hedge fund managers can beat the market by a superb amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to review the key hedge fund action encompassing Arch Resources, Inc. (NYSE:ARCH).
Do Hedge Funds Think ARCH Is A Good Stock To Buy Now?
At the end of March, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in ARCH a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Barrett and Paul Segal’s Luminus Management has the biggest position in Arch Resources, Inc. (NYSE:ARCH), worth close to $28.1 million, accounting for 5.4% of its total 13F portfolio. Sitting at the No. 2 spot is Maple Rock Capital, led by Len Kipp and Xavier Majic, holding a $22.7 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise Charles Paquelet’s Skylands Capital, Jon Bauer’s Contrarian Capital and James Dondero’s Highland Capital Management. In terms of the portfolio weights assigned to each position Highland Capital Management allocated the biggest weight to Arch Resources, Inc. (NYSE:ARCH), around 9.65% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, earmarking 5.4 percent of its 13F equity portfolio to ARCH.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Highland Capital Management, managed by James Dondero, assembled the biggest position in Arch Resources, Inc. (NYSE:ARCH). Highland Capital Management had $12.5 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new ARCH investors: Michael Gelband’s ExodusPoint Capital, Noam Gottesman’s GLG Partners, and Cliff Asness’s AQR Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Arch Resources, Inc. (NYSE:ARCH). We will take a look at FutureFuel Corp. (NYSE:FF), Sify Technologies Limited (NASDAQ:SIFY), Carriage Services, Inc. (NYSE:CSV), China Yuchai International Limited (NYSE:CYD), Bicycle Therapeutics plc (NASDAQ:BCYC), American Vanguard Corp. (NYSE:AVD), and Akoustis Technologies, Inc. (NASDAQ:AKTS). This group of stocks’ market valuations resemble ARCH’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $163 million in ARCH’s case. Carriage Services, Inc. (NYSE:CSV) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Arch Resources, Inc. (NYSE:ARCH) is more popular among hedge funds. Our overall hedge fund sentiment score for ARCH is 73.9. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 24% in 2021 through July 9th but still managed to beat the market by 6.7 percentage points. Hedge funds were also right about betting on ARCH as the stock returned 47.1% since the end of March (through 7/9) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.