Do Hedge Funds Love Advanced Disposal Services, Inc. (ADSW)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Advanced Disposal Services, Inc. (NYSE:ADSW) based on those filings.

Advanced Disposal Services, Inc. (NYSE:ADSW) has seen a decrease in hedge fund interest recently. ADSW was in 21 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with ADSW positions at the end of the previous quarter. Our calculations also showed that ADSW 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action surrounding Advanced Disposal Services, Inc. (NYSE:ADSW).

How have hedgies been trading Advanced Disposal Services, Inc. (NYSE:ADSW)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in ADSW a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Advanced Disposal Services, Inc. (NYSE:ADSW), with a stake worth $165.8 million reported as of the end of September. Trailing Renaissance Technologies was Alpine Associates, which amassed a stake valued at $158.3 million. Pentwater Capital Management, Magnetar Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Halcyon Asset Management allocated the biggest weight to Advanced Disposal Services, Inc. (NYSE:ADSW), around 11.04% of its 13F portfolio. Sandell Asset Management is also relatively very bullish on the stock, designating 9.29 percent of its 13F equity portfolio to ADSW.

Seeing as Advanced Disposal Services, Inc. (NYSE:ADSW) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there were a few hedge funds who were dropping their positions entirely last quarter. It’s worth mentioning that John Orrico’s Water Island Capital sold off the largest stake of the 750 funds watched by Insider Monkey, comprising close to $98.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $26.3 million worth. These transactions 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 Advanced Disposal Services, Inc. (NYSE:ADSW) but similarly valued. We will take a look at KBR, Inc. (NYSE:KBR), Noble Energy, Inc. (NASDAQ:NBL), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), and Mantech International Corp (NASDAQ:MANT). All of these stocks’ market caps match ADSW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KBR 28 424712 -1
NBL 35 382923 7
ARWR 22 160633 -4
MANT 17 32174 -6
Average 25.5 250111 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $740 million in ADSW’s case. Noble Energy, Inc. (NASDAQ:NBL) is the most popular stock in this table. On the other hand Mantech International Corp (NASDAQ:MANT) is the least popular one with only 17 bullish hedge fund positions. Advanced Disposal Services, Inc. (NYSE:ADSW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.2% in 2020 through June 17th and surpassed the market by 14.8 percentage points. Unfortunately ADSW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ADSW investors were disappointed as the stock returned -3.1% 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.