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Here’s What Hedge Funds Think About Advanced Disposal Services, Inc. (ADSW)

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Advanced Disposal Services, Inc. (NYSE:ADSW).

Advanced Disposal Services, Inc. (NYSE:ADSW) was in 12 hedge funds’ portfolios at the end of the first quarter of 2019. ADSW has experienced a decrease in hedge fund sentiment of late. There were 15 hedge funds in our database with ADSW positions at the end of the previous quarter. Our calculations also showed that ADSW isn’t among the 30 most popular stocks among hedge funds.

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.

John Overdeck of Two Sigma

We’re going to take a glance at the new hedge fund action regarding Advanced Disposal Services, Inc. (NYSE:ADSW).

How are hedge funds trading Advanced Disposal Services, Inc. (NYSE:ADSW)?

At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the fourth quarter of 2018. On the other hand, there were a total of 18 hedge funds with a bullish position in ADSW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

ADSW_june2019

The largest stake in Advanced Disposal Services, Inc. (NYSE:ADSW) was held by Millennium Management, which reported holding $45.1 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $37.3 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and GLG Partners.

Judging by the fact that Advanced Disposal Services, Inc. (NYSE:ADSW) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who were dropping their full holdings heading into Q3. It’s worth mentioning that Jos Shaver’s Electron Capital Partners said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $10.5 million in stock. Richard Chilton’s fund, Chilton Investment Company, also dumped its stock, about $2.4 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Advanced Disposal Services, Inc. (NYSE:ADSW). We will take a look at Seritage Growth Properties (NYSE:SRG), Yamana Gold Inc. (NYSE:AUY), Cabot Corporation (NYSE:CBT), and HB Fuller Co (NYSE:FUL). This group of stocks’ market values resemble ADSW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRG 17 451405 3
AUY 18 167074 -1
CBT 20 107789 -9
FUL 18 190088 4
Average 18.25 229089 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $123 million in ADSW’s case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand Seritage Growth Properties (NYSE:SRG) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Advanced Disposal Services, Inc. (NYSE:ADSW) is even less popular than SRG. Hedge funds clearly dropped the ball on ADSW 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 ADSW as the stock returned 14.6% 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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