Hedge Fund Darlings vs. Advanced Disposal Services, Inc. (ADSW) In 2019

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Advanced Disposal Services, Inc. (NYSE:ADSW).

Advanced Disposal Services, Inc. (NYSE:ADSW) was in 24 hedge funds’ portfolios at the end of September. ADSW investors should pay attention to a decrease in hedge fund sentiment lately. There were 26 hedge funds in our database with ADSW holdings 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 Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s review the fresh hedge fund action encompassing Advanced Disposal Services, Inc. (NYSE:ADSW).

What have hedge funds been doing with Advanced Disposal Services, Inc. (NYSE:ADSW)?

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADSW over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pentwater Capital Management held the most valuable stake in Advanced Disposal Services, Inc. (NYSE:ADSW), which was worth $109.1 million at the end of the third quarter. On the second spot was Magnetar Capital which amassed $107.8 million worth of shares. Alpine Associates, Water Island 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 Havens Advisors allocated the biggest weight to Advanced Disposal Services, Inc. (NYSE:ADSW), around 7.2% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, setting aside 5.46 percent of its 13F equity portfolio to ADSW.

Because Advanced Disposal Services, Inc. (NYSE:ADSW) has witnessed falling interest from the smart money, it’s easy to see that there was a specific group of hedge funds who sold off their entire stakes in the third quarter. At the top of the heap, Nick Niell’s Arrowgrass Capital Partners dumped the largest position of all the hedgies monitored by Insider Monkey, worth an estimated $2.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $1.8 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Advanced Disposal Services, Inc. (NYSE:ADSW). We will take a look at Magnolia Oil & Gas Corporation (NYSE:MGY), BlackBerry Limited (NYSE:BB), Novanta Inc. (NASDAQ:NOVT), and Colliers International Group Inc (NASDAQ:CIGI). This group of stocks’ market caps match ADSW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGY 17 132628 -2
BB 28 401792 3
NOVT 9 46032 -4
CIGI 11 714194 1
Average 16.25 323662 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $668 million in ADSW’s case. BlackBerry Limited (NYSE:BB) is the most popular stock in this table. On the other hand Novanta Inc. (NASDAQ:NOVT) is the least popular one with only 9 bullish hedge fund positions. Advanced Disposal Services, Inc. (NYSE:ADSW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ADSW, though not to the same extent, as the stock returned 37.3% during 2019 and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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