Did Hedge Funds Make The Right Call On Allegheny Technologies Incorporated (ATI) ?

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 thoughtAllegheny Technologies Incorporated (NYSE:ATI) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Allegheny Technologies Incorporated (NYSE:ATI) worth your attention right now? Prominent investors were taking a bearish view. The number of long hedge fund bets retreated by 1 in recent months. Our calculations also showed that ATI 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). ATI was in 26 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with ATI positions at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a look at the new hedge fund action encompassing Allegheny Technologies Incorporated (NYSE:ATI).

Hedge fund activity in Allegheny Technologies Incorporated (NYSE:ATI)

At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ATI over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the most valuable position in Allegheny Technologies Incorporated (NYSE:ATI), worth close to $15.3 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Water Street Capital, managed by Gilchrist Berg, which holds a $11.6 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Ken Fisher’s Fisher Asset Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Allegheny Technologies Incorporated (NYSE:ATI), around 4.09% of its 13F portfolio. Water Street Capital is also relatively very bullish on the stock, earmarking 1.27 percent of its 13F equity portfolio to ATI.

Since Allegheny Technologies Incorporated (NYSE:ATI) has faced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of funds who sold off their entire stakes in the first quarter. Interestingly, Brandon Haley’s Holocene Advisors sold off the largest stake of all the hedgies watched by Insider Monkey, worth close to $3.7 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $1.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Allegheny Technologies Incorporated (NYSE:ATI). These stocks are Acadia Realty Trust (NYSE:AKR), S & T Bancorp Inc (NASDAQ:STBA), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), and Air Transport Services Group Inc. (NASDAQ:ATSG). This group of stocks’ market values resemble ATI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AKR 14 31992 1
STBA 4 3076 -5
AMRX 7 4326 -3
ATSG 22 116281 2
Average 11.75 38919 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $95 million in ATI’s case. Air Transport Services Group Inc. (NASDAQ:ATSG) is the most popular stock in this table. On the other hand S & T Bancorp Inc (NASDAQ:STBA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Allegheny Technologies Incorporated (NYSE:ATI) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately ATI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ATI were disappointed as the stock returned 19.9% during the second quarter 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.