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Did Hedge Funds Drop The Ball On Aramark (ARMK) ?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Aramark (NYSE:ARMK) a healthy stock for your portfolio? Prominent investors are getting less optimistic. The number of bullish hedge fund positions decreased by 1 recently. Our calculations also showed that ARMK isn’t among the 30 most popular stocks among hedge funds.

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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Lowenstein Kensico Capital

We’re going to take a glance at the fresh hedge fund action regarding Aramark (NYSE:ARMK).

Hedge fund activity in Aramark (NYSE:ARMK)

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in ARMK a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

ARMK_jun2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Michael Lowenstein’s Kensico Capital has the biggest position in Aramark (NYSE:ARMK), worth close to $250.1 million, accounting for 4.9% of its total 13F portfolio. On Kensico Capital’s heels is Nitorum Capital, led by Seth Rosen, holding a $105.7 million position; 7% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions include D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management.

Seeing as Aramark (NYSE:ARMK) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that slashed their full holdings last quarter. At the top of the heap, Larry Robbins’s Glenview Capital cut the largest position of the 700 funds watched by Insider Monkey, comprising about $87.6 million in call options, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $47.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Aramark (NYSE:ARMK) but similarly valued. We will take a look at News Corp (NASDAQ:NWSA), Enel Chile S.A. (NYSE:ENIC), Aspen Technology, Inc. (NASDAQ:AZPN), and Unum Group (NYSE:UNM). This group of stocks’ market caps are closest to ARMK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWSA 21 517519 -2
ENIC 5 31551 -2
AZPN 25 1108955 0
UNM 25 373181 0
Average 19 507802 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $508 million. That figure was $854 million in ARMK’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Aramark (NYSE:ARMK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ARMK as the stock returned 18.5% during the same period 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.

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