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Did Hedge Funds Drop The Ball On Advanced Disposal Services, Inc. (ADSW) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAdvanced Disposal Services, Inc. (NYSE:ADSW) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Advanced Disposal Services, Inc. (NYSE:ADSW) an outstanding investment today? Money managers were turning less bullish. The number of bullish hedge fund bets were cut by 1 lately. Our calculations also showed that ADSW 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Alex Litowitz Magnetar Capital

Alex Litowitz of Magnetar Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to check out the latest hedge fund action regarding Advanced Disposal Services, Inc. (NYSE:ADSW).

What does smart money think about Advanced Disposal Services, Inc. (NYSE:ADSW)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADSW 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, Renaissance Technologies was the largest shareholder of Advanced Disposal Services, Inc. (NYSE:ADSW), with a stake worth $165.8 million reported as of the end of September. Trailing Renaissance Technologies was Alpine Associates, which amassed a stake valued at $158.3 million. Pentwater Capital Management, Magnetar Capital, and Millennium 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 Halcyon Asset Management allocated the biggest weight to Advanced Disposal Services, Inc. (NYSE:ADSW), around 11.04% of its 13F portfolio. Sandell Asset Management is also relatively very bullish on the stock, earmarking 9.29 percent of its 13F equity portfolio to ADSW.

Judging by the fact that Advanced Disposal Services, Inc. (NYSE:ADSW) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that decided to sell off their entire stakes by the end of the first quarter. At the top of the heap, John Orrico’s Water Island Capital said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $98.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $26.3 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Advanced Disposal Services, Inc. (NYSE:ADSW) but similarly valued. We will take a look at KBR, Inc. (NYSE:KBR), Noble Energy, Inc. (NASDAQ:NBL), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), and Mantech International Corp (NASDAQ:MANT). This group of stocks’ market valuations are similar to ADSW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KBR 28 424712 -1
NBL 35 382923 7
ARWR 22 160633 -4
MANT 17 32174 -6
Average 25.5 250111 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $740 million in ADSW’s case. Noble Energy, Inc. (NASDAQ:NBL) is the most popular stock in this table. On the other hand Mantech International Corp (NASDAQ:MANT) is the least popular one with only 17 bullish hedge fund positions. Advanced Disposal Services, Inc. (NYSE:ADSW) 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. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately ADSW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ADSW investors were disappointed as the stock returned -7.9% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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