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Hedge Funds Done Selling Alliance Resource Partners, L.P. (ARLP)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Alliance Resource Partners, L.P. (NASDAQ:ARLP) based on that data.

Alliance Resource Partners, L.P. (NASDAQ:ARLP) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as UP Fintech Holding Limited (NASDAQ:TIGR), Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), and Luxfer Holdings PLC (NYSE:LXFR) to gather more data points. Our calculations also showed that ARLP 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 44 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.

Wall Street Bull

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the latest hedge fund action surrounding Alliance Resource Partners, L.P. (NASDAQ:ARLP).

What have hedge funds been doing with Alliance Resource Partners, L.P. (NASDAQ:ARLP)?

At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in ARLP a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Magnolia Capital Fund, managed by Adam Peterson, holds the biggest position in Alliance Resource Partners, L.P. (NASDAQ:ARLP). Magnolia Capital Fund has a $16.7 million position in the stock, comprising 2.6% of its 13F portfolio. The second largest stake is held by Mountain Lake Investment Management, managed by Mitch Cantor, which holds a $2.2 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Other peers that are bullish include Phil Frohlich’s Prescott Group Capital Management, and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Magnolia Capital Fund allocated the biggest weight to Alliance Resource Partners, L.P. (NASDAQ:ARLP), around 2.64% of its 13F portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, setting aside 2.09 percent of its 13F equity portfolio to ARLP.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Alliance Resource Partners, L.P. (NASDAQ:ARLP) but similarly valued. We will take a look at UP Fintech Holding Limited (NASDAQ:TIGR), Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), Luxfer Holdings PLC (NYSE:LXFR), and Forterra, Inc. (NASDAQ:FRTA). This group of stocks’ market values resemble ARLP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TIGR 2 162 -1
HCCI 8 35905 -1
LXFR 9 95544 -1
FRTA 14 38481 -1
Average 8.25 42523 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $20 million in ARLP’s case. Forterra, Inc. (NASDAQ:FRTA) is the most popular stock in this table. On the other hand UP Fintech Holding Limited (NASDAQ:TIGR) is the least popular one with only 2 bullish hedge fund positions. Alliance Resource Partners, L.P. (NASDAQ:ARLP) 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately ARLP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ARLP investors were disappointed as the stock returned 2.3% 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.

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