Did Hedge Funds Make The Right Call On Artisan Partners Asset Management Inc (APAM) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Artisan Partners Asset Management Inc (NYSE:APAM) and determine whether hedge funds had an edge regarding this stock.

Artisan Partners Asset Management Inc (NYSE:APAM) has experienced an increase in enthusiasm from smart money in recent months. APAM was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with APAM positions at the end of the previous quarter. Our calculations also showed that APAM 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.

In the eyes of most traders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are over 8000 funds trading today, We choose to focus on the bigwigs of this group, approximately 850 funds. These money managers shepherd the lion’s share of the hedge fund industry’s total asset base, and by tailing their top investments, Insider Monkey has unsheathed many investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 under-the-radar lithium 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. Keeping this in mind let’s take a look at the latest hedge fund action regarding Artisan Partners Asset Management Inc (NYSE:APAM).

How have hedgies been trading Artisan Partners Asset Management Inc (NYSE:APAM)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in APAM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in Artisan Partners Asset Management Inc (NYSE:APAM), worth close to $80.5 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Fisher Asset Management, managed by Ken Fisher, which holds a $30.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism include Chuck Royce’s Royce & Associates, Ken Griffin’s Citadel Investment Group and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Azora Capital allocated the biggest weight to Artisan Partners Asset Management Inc (NYSE:APAM), around 1.06% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, designating 0.55 percent of its 13F equity portfolio to APAM.

As aggregate interest increased, key money managers were leading the bulls’ herd. Azora Capital, managed by Ravi Chopra, created the largest position in Artisan Partners Asset Management Inc (NYSE:APAM). Azora Capital had $2.7 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also initiated a $1.5 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Paul Tudor Jones’s Tudor Investment Corp, and Greg Eisner’s Engineers Gate Manager.

Let’s go over hedge fund activity in other stocks similar to Artisan Partners Asset Management Inc (NYSE:APAM). These stocks are Fate Therapeutics Inc (NASDAQ:FATE), Golub Capital BDC Inc (NASDAQ:GBDC), Genworth Financial Inc (NYSE:GNW), and Option Care Health, Inc. (NASDAQ:OPCH). This group of stocks’ market valuations match APAM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FATE 24 582153 1
GBDC 13 52793 -3
GNW 32 258511 0
OPCH 7 12260 -7
Average 19 226429 -2.25

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 $226 million. That figure was $172 million in APAM’s case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand Option Care Health, Inc. (NASDAQ:OPCH) is the least popular one with only 7 bullish hedge fund positions. Artisan Partners Asset Management Inc (NYSE:APAM) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on APAM as the stock returned 63.6% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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