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Is Avantor, Inc. (AVTR) A Good Investment According To Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Avantor, Inc. (NYSE:AVTR) and determine whether the smart money was really smart about this stock.

Avantor, Inc. (NYSE:AVTR) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AVTR investors should pay attention to an increase in hedge fund interest lately. There were 29 hedge funds in our database with AVTR positions at the end of the first quarter. Our calculations also showed that AVTR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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’ 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 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 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.

Ricky Sandler of Eminence Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding Avantor, Inc. (NYSE:AVTR).

How have hedgies been trading Avantor, Inc. (NYSE:AVTR)?

At Q2’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AVTR over the last 20 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, Viking Global was the largest shareholder of Avantor, Inc. (NYSE:AVTR), with a stake worth $93.1 million reported as of the end of September. Trailing Viking Global was Citadel Investment Group, which amassed a stake valued at $86.6 million. Maverick Capital, Eminence Capital, and Millennium Management 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 Highside Global Management allocated the biggest weight to Avantor, Inc. (NYSE:AVTR), around 7.2% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 6.62 percent of its 13F equity portfolio to AVTR.

As one would reasonably expect, specific money managers have jumped into Avantor, Inc. (NYSE:AVTR) headfirst. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, initiated the biggest position in Avantor, Inc. (NYSE:AVTR). Polar Capital had $45.6 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also made a $39.3 million investment in the stock during the quarter. The following funds were also among the new AVTR investors: Renaissance Technologies, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks similar to Avantor, Inc. (NYSE:AVTR). These stocks are Qiagen NV (NYSE:QGEN), China Southern Airlines Co Ltd (NYSE:ZNH), RPM International Inc. (NYSE:RPM), The Carlyle Group Inc. (NASDAQ:CG), Magellan Midstream Partners, L.P. (NYSE:MMP), ASE Technology Holding Co., Ltd. (NYSE:ASX), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks’ market values are similar to AVTR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QGEN 32 652397 2
ZNH 2 7852 0
RPM 26 108615 4
CG 8 171536 -8
MMP 15 59070 2
ASX 11 167226 2
XRAY 28 1023314 -2
Average 17.4 312859 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $313 million. That figure was $647 million in AVTR’s case. Qiagen NV (NYSE:QGEN) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Avantor, Inc. (NYSE:AVTR) is more popular among hedge funds. Our overall hedge fund sentiment score for AVTR is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on AVTR as the stock returned 32.8% since the end of June 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.

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Disclosure: None. This article was originally published at Insider Monkey.