In this article we will check out the progression of hedge fund sentiment towards Arch Resources, Inc. (NYSE:ARCH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Arch Resources, Inc. (NYSE:ARCH) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that ARCH 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the fresh hedge fund action regarding Arch Resources, Inc. (NYSE:ARCH).
What have hedge funds been doing with Arch Resources, Inc. (NYSE:ARCH)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ARCH over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Arch Resources, Inc. (NYSE:ARCH) was held by Luminus Management, which reported holding $18.4 million worth of stock at the end of September. It was followed by Maple Rock Capital with a $15.6 million position. Other investors bullish on the company included Highland Capital Management, Citadel Investment Group, and Skylands Capital. In terms of the portfolio weights assigned to each position Anchor Bolt Capital allocated the biggest weight to Arch Resources, Inc. (NYSE:ARCH), around 7.66% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, designating 4.01 percent of its 13F equity portfolio to ARCH.
Since Arch Resources, Inc. (NYSE:ARCH) has faced bearish sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of funds that slashed their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $3.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Arch Resources, Inc. (NYSE:ARCH). We will take a look at CrossFirst Bankshares, Inc. (NASDAQ:CFB), Kimball International Inc (NASDAQ:KBAL), Merchants Bancorp (NASDAQ:MBIN), and Ichor Holdings, Ltd. (NASDAQ:ICHR). This group of stocks’ market values are similar to ARCH’s market value.
|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 10 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $89 million in ARCH’s case. Ichor Holdings, Ltd. (NASDAQ:ICHR) is the most popular stock in this table. On the other hand CrossFirst Bankshares, Inc. (NASDAQ:CFB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Arch Resources, Inc. (NYSE:ARCH) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on ARCH as the stock returned 29.7% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.