Did Hedge Funds Drop The Ball On AMC Entertainment Holdings Inc (AMC) ?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 AMC Entertainment Holdings Inc (NYSE:AMC).

Is AMC Entertainment Holdings Inc (NYSE:AMC) a buy here? The best stock pickers are becoming less confident. The number of long hedge fund bets were cut by 2 in recent months. Our calculations also showed that AMC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the latest hedge fund action regarding AMC Entertainment Holdings Inc (NYSE:AMC).

Hedge fund activity in AMC Entertainment Holdings Inc (NYSE:AMC)

At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AMC over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

No of Hedge Funds with AMC Positions

Of the funds tracked by Insider Monkey, Renaissance Technologies holds the largest position in AMC Entertainment Holdings Inc (NYSE:AMC). Renaissance Technologies has a $32.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Bruce Emery of Greenvale Capital, with a $29.8 million position; the fund has 7.6% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Brett Hendrickson’s Nokomis Capital, Joe Huber’s Huber Capital Management and Ken Griffin’s Citadel Investment Group.

Seeing as AMC Entertainment Holdings Inc (NYSE:AMC) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of money managers that slashed their full holdings by the end of the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $19.4 million in stock, and Christian Leone’s Luxor Capital Group was right behind this move, as the fund sold off about $14.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AMC Entertainment Holdings Inc (NYSE:AMC) but similarly valued. We will take a look at Despegar.com, Corp. (NYSE:DESP), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), Theravance Biopharma Inc (NASDAQ:TBPH), and Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS). This group of stocks’ market values resemble AMC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DESP 12 192901 -3
NGM 10 26704 10
TBPH 8 362299 -1
VLRS 7 105923 -3
Average 9.25 171957 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $83 million in AMC’s case. Despegar.com, Corp. (NYSE:DESP) is the most popular stock in this table. On the other hand Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks AMC Entertainment Holdings Inc (NYSE:AMC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AMC as the stock returned 16.6% during Q3 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.

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