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Did Hedge Funds Make The Right Call On Pool Corporation (POOL) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Pool Corporation (NASDAQ:POOL) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Pool Corporation (NASDAQ:POOL) has seen an increase in enthusiasm from smart money recently. POOL was in 33 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with POOL holdings at the end of the previous quarter. Our calculations also showed that POOL 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

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. Keeping this in mind let’s check out the new hedge fund action surrounding Pool Corporation (NASDAQ:POOL).

What does smart money think about Pool Corporation (NASDAQ:POOL)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in POOL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Pool Corporation (NASDAQ:POOL) was held by Fisher Asset Management, which reported holding $74.9 million worth of stock at the end of September. It was followed by Impax Asset Management with a $66.8 million position. Other investors bullish on the company included Chilton Investment Company, Echo Street Capital Management, and Select Equity Group. In terms of the portfolio weights assigned to each position Aubrey Capital Management allocated the biggest weight to Pool Corporation (NASDAQ:POOL), around 2.28% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, setting aside 2.03 percent of its 13F equity portfolio to POOL.

Consequently, key hedge funds have been driving this bullishness. Select Equity Group, managed by Robert Joseph Caruso, established the largest position in Pool Corporation (NASDAQ:POOL). Select Equity Group had $25.9 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $7.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Renaissance Technologies, and Clint Carlson’s Carlson Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pool Corporation (NASDAQ:POOL) but similarly valued. These stocks are Camden Property Trust (NYSE:CPT), Expedia Group Inc (NASDAQ:EXPE), Crown Holdings, Inc. (NYSE:CCK), and Zscaler, Inc. (NASDAQ:ZS). This group of stocks’ market values match POOL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPT 32 361736 1
EXPE 41 1550595 -18
CCK 56 1217305 -2
ZS 27 274887 9
Average 39 851131 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $851 million. That figure was $362 million in POOL’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 27 bullish hedge fund positions. Pool Corporation (NASDAQ:POOL) is not the least popular stock in this group but hedge fund interest is still below 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on POOL as the stock returned 38.5% during the second quarter and outperformed the market by an even larger margin.

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