Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Party City Holdco Inc (NYSE:PRTY).
Party City Holdco Inc (NYSE:PRTY) has experienced a decrease in enthusiasm from smart money lately. PRTY was in 10 hedge funds’ portfolios at the end of June. There were 19 hedge funds in our database with PRTY holdings at the end of the previous quarter. Our calculations also showed that PRTY isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action encompassing Party City Holdco Inc (NYSE:PRTY).
Hedge fund activity in Party City Holdco Inc (NYSE:PRTY)
At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -47% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PRTY over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in Party City Holdco Inc (NYSE:PRTY), which was worth $31.7 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $12 million worth of shares. Moreover, Clearline Capital, Royce & Associates, and Two Sigma Advisors were also bullish on Party City Holdco Inc (NYSE:PRTY), allocating a large percentage of their portfolios to this stock.
Due to the fact that Party City Holdco Inc (NYSE:PRTY) has experienced a decline in interest from hedge fund managers, logic holds that there exists a select few fund managers that elected to cut their positions entirely in the second quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $5 million in stock. David Rosen’s fund, Rubric Capital Management, also dropped its stock, about $1.4 million worth. These transactions are important to note, as total hedge fund interest fell by 9 funds in the second quarter.
Let’s now review hedge fund activity in other stocks similar to Party City Holdco Inc (NYSE:PRTY). These stocks are Argan, Inc. (NYSE:AGX), Resolute Forest Products Inc (NYSE:RFP), Heska Corp (NASDAQ:HSKA), and Control4 Corp (NASDAQ:CTRL). This group of stocks’ market values are closest to PRTY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGX | 10 | 90573 | -2 |
| RFP | 17 | 286497 | -6 |
| HSKA | 13 | 35709 | 2 |
| CTRL | 15 | 69622 | -2 |
| Average | 13.75 | 120600 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $58 million in PRTY’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Argan, Inc. (NYSE:AGX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Party City Holdco Inc (NYSE:PRTY) is even less popular than AGX. Hedge funds dodged a bullet by taking a bearish stance towards PRTY. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRTY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRTY investors were disappointed as the stock returned -22.1% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
