We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 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 December 31st. In this article, we look at what those funds think of Ardagh Group S.A. (NYSE:ARD) based on that data.
Ardagh Group S.A. (NYSE:ARD) was in 9 hedge funds’ portfolios at the end of December. ARD shareholders have witnessed a decrease in hedge fund sentiment of late. There were 12 hedge funds in our database with ARD holdings at the end of the previous quarter. Our calculations also showed that ARD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. With all of this in mind let’s take a look at the new hedge fund action regarding Ardagh Group S.A. (NYSE:ARD).
What have hedge funds been doing with Ardagh Group S.A. (NYSE:ARD)?
Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARD over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Canyon Capital Advisors was the largest shareholder of Ardagh Group S.A. (NYSE:ARD), with a stake worth $56.9 million reported as of the end of September. Trailing Canyon Capital Advisors was Renaissance Technologies, which amassed a stake valued at $18.4 million. Arrowstreet Capital, Citadel Investment Group, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Canyon Capital Advisors allocated the biggest weight to Ardagh Group S.A. (NYSE:ARD), around 1.33% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to ARD.
Because Ardagh Group S.A. (NYSE:ARD) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their entire stakes heading into Q4. It’s worth mentioning that Andy Redleaf’s Whitebox Advisors dumped the largest investment of the 750 funds watched by Insider Monkey, worth about $1.7 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dumped about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Ardagh Group S.A. (NYSE:ARD). We will take a look at Grand Canyon Education Inc (NASDAQ:LOPE), Solaredge Technologies Inc (NASDAQ:SEDG), Ashland Global Holdings Inc.. (NYSE:ASH), and Flowers Foods, Inc. (NYSE:FLO). All of these stocks’ market caps match ARD’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 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $448 million. That figure was $81 million in ARD’s case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Grand Canyon Education Inc (NASDAQ:LOPE) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ardagh Group S.A. (NYSE:ARD) is even less popular than LOPE. Hedge funds dodged a bullet by taking a bearish stance towards ARD. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately ARD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ARD investors were disappointed as the stock returned -36% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.