Did Hedge Funds Drop The Ball On Altra Industrial Motion Corp. (AIMC) ?

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 Altra Industrial Motion Corp. (NASDAQ:AIMC).

Altra Industrial Motion Corp. (NASDAQ:AIMC) was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2018. AIMC investors should pay attention to a decrease in support from the world’s most elite money managers recently. There were 35 hedge funds in our database with AIMC positions at the end of the previous quarter. Our calculations also showed that aimc isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Gates Gates Capital

We’re going to go over the latest hedge fund action regarding Altra Industrial Motion Corp. (NASDAQ:AIMC).

What does the smart money think about Altra Industrial Motion Corp. (NASDAQ:AIMC)?

At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AIMC over the last 14 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

No of Hedge Funds with AIMC Positions

Among these funds, Gates Capital Management held the most valuable stake in Altra Industrial Motion Corp. (NASDAQ:AIMC), which was worth $94.3 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $34.2 million worth of shares. Moreover, Pentwater Capital Management, Marshall Wace LLP, and Balyasny Asset Management were also bullish on Altra Industrial Motion Corp. (NASDAQ:AIMC), allocating a large percentage of their portfolios to this stock.

Seeing as Altra Industrial Motion Corp. (NASDAQ:AIMC) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who sold off their full holdings heading into Q3. Interestingly, Benjamin A. Smith’s Laurion Capital Management dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $42.9 million in stock, and Noah Levy and Eugene Dozortsev’s Newtyn Management was right behind this move, as the fund said goodbye to about $20.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 14 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Altra Industrial Motion Corp. (NASDAQ:AIMC) but similarly valued. We will take a look at Allegiant Travel Company (NASDAQ:ALGT), Diodes Incorporated (NASDAQ:DIOD), Cooper Tire & Rubber Company (NYSE:CTB), and Invesco Mortgage Capital Inc (NYSE:IVR). This group of stocks’ market caps resemble AIMC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALGT 21 355344 6
DIOD 15 69155 -2
CTB 17 140866 7
IVR 13 27092 2
Average 16.5 148114 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $244 million in AIMC’s case. Allegiant Travel Company (NASDAQ:ALGT) is the most popular stock in this table. On the other hand Invesco Mortgage Capital Inc (NYSE:IVR) is the least popular one with only 13 bullish hedge fund positions. Altra Industrial Motion Corp. (NASDAQ:AIMC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on AIMC as the stock returned 36.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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