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Hedge Funds Are Crazy About Installed Building Products Inc (IBP)

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Installed Building Products Inc (NYSE:IBP) changed recently.

Installed Building Products Inc (NYSE:IBP) investors should be aware of an increase in enthusiasm from smart money recently. IBP was in 13 hedge funds’ portfolios at the end of the first quarter of 2019. There were 8 hedge funds in our database with IBP positions at the end of the previous quarter. Our calculations also showed that IBP isn’t among the 30 most popular stocks among hedge funds.

If you’d ask most stock holders, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers choose to focus on the aristocrats of this group, about 750 funds. These investment experts preside over bulk of all hedge funds’ total capital, and by tailing their finest stock picks, Insider Monkey has figured out various investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).

Jeffrey Talpins Element Capital

Let’s take a look at the recent hedge fund action encompassing Installed Building Products Inc (NYSE:IBP).

How are hedge funds trading Installed Building Products Inc (NYSE:IBP)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 63% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in IBP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

IBP_jun2019

According to Insider Monkey’s hedge fund database, Zachary Sternberg and Benjamin Stein’s Spruce House Investment Management has the largest position in Installed Building Products Inc (NYSE:IBP), worth close to $135.8 million, corresponding to 5% of its total 13F portfolio. The second most bullish fund manager is Thomas E. Claugus of GMT Capital, with a $23.9 million position; 0.8% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain Israel Englander’s Millennium Management, Richard Driehaus’s Driehaus Capital and Charles Clough’s Clough Capital Partners.

As industrywide interest jumped, specific money managers were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the largest position in Installed Building Products Inc (NYSE:IBP). Driehaus Capital had $6.6 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also made a $2.2 million investment in the stock during the quarter. The other funds with brand new IBP positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Mike Vranos’s Ellington, and Jeffrey Talpins’s Element Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Installed Building Products Inc (NYSE:IBP) but similarly valued. We will take a look at Tootsie Roll Industries, Inc. (NYSE:TR), Dycom Industries, Inc. (NYSE:DY), Horace Mann Educators Corporation (NYSE:HMN), and Diamond Offshore Drilling Inc (NYSE:DO). This group of stocks’ market valuations are closest to IBP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TR 16 94425 5
DY 17 60413 -1
HMN 14 28217 1
DO 18 66179 2
Average 16.25 62309 1.75

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 $62 million. That figure was $188 million in IBP’s case. Diamond Offshore Drilling Inc (NYSE:DO) is the most popular stock in this table. On the other hand Horace Mann Educators Corporation (NYSE:HMN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Installed Building Products Inc (NYSE:IBP) is even less popular than HMN. Hedge funds clearly dropped the ball on IBP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on IBP as the stock returned 9.3% during the same period and outperformed the market by an even larger margin.

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

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