It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Armstrong World Industries, Inc. (NYSE:AWI) during the quarter below.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the key hedge fund action regarding Armstrong World Industries, Inc. (NYSE:AWI).
Hedge fund activity in Armstrong World Industries, Inc. (NYSE:AWI)
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the second quarter of 2018. By comparison, 29 hedge funds held shares or bullish call options in AWI heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Armstrong World Industries, Inc. (NYSE:AWI) was held by ValueAct Capital, which reported holding $363.7 million worth of stock at the end of September. It was followed by Gates Capital Management with a $112.5 million position. Other investors bullish on the company included Cantillon Capital Management, Cantillon Capital Management, and D E Shaw.
Because Armstrong World Industries, Inc. (NYSE:AWI) has faced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Roberto Mignone’s Bridger Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $48.6 million in stock. Allan Mecham and Ben Raybould’s fund, Arlington Value Capital, also sold off its stock, about $2.5 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Armstrong World Industries, Inc. (NYSE:AWI) but similarly valued. We will take a look at Dicks Sporting Goods Inc (NYSE:DKS), Embraer SA (NYSE:ERJ), Manhattan Associates, Inc. (NASDAQ:MANH), and Platform Specialty Products Corporation (NYSE:PAH). This group of stocks’ market caps are closest to AWI’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 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $482 million. That figure was $863 million in AWI’s case. Platform Specialty Products Corporation (NYSE:PAH) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 11 bullish hedge fund positions. Armstrong World Industries, Inc. (NYSE:AWI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PAH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.