We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards AK Steel Holding Corporation (NYSE:AKS).
AK Steel Holding Corporation (NYSE:AKS) was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. AKS has seen an increase in activity from the world’s largest hedge funds in recent months. There were 13 hedge funds in our database with AKS positions at the end of the previous quarter. Our calculations also showed that AKS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a 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. We’re going to analyze the key hedge fund action surrounding AK Steel Holding Corporation (NYSE:AKS).
How are hedge funds trading AK Steel Holding Corporation (NYSE:AKS)?
At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the first quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in AKS a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of AK Steel Holding Corporation (NYSE:AKS), with a stake worth $5.5 million reported as of the end of March. Trailing Point72 Asset Management was Renaissance Technologies, which amassed a stake valued at $4.9 million. DC Capital Partners, Citadel Investment Group, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in AK Steel Holding Corporation (NYSE:AKS). Point72 Asset Management had $5.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $4.9 million position during the quarter. The only other fund with a brand new AKS position is Mike Vranos’s Ellington.
Let’s go over hedge fund activity in other stocks similar to AK Steel Holding Corporation (NYSE:AKS). These stocks are Zealand Pharma A/S (NASDAQ:ZEAL), Tutor Perini Corporation (NYSE:TPC), United Financial Bancorp, Inc. (NASDAQ:UBNK), and Capstead Mortgage Corporation (NYSE:CMO). All of these stocks’ market caps are similar to AKS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $26 million in AKS’s case. United Financial Bancorp, Inc. (NASDAQ:UBNK) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks AK Steel Holding Corporation (NYSE:AKS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AKS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AKS were disappointed as the stock returned -4.2% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.