The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Packaging Corp Of America (NYSE:PKG) and see how it was affected.
Packaging Corp Of America (NYSE:PKG) investors should be aware of a decrease in enthusiasm from smart money of late. PKG was in 19 hedge funds’ portfolios at the end of September. There were 31 hedge funds in our database with PKG holdings at the end of the previous quarter. At the end of this article we will also compare PKG to other stocks including Rollins, Inc. (NYSE:ROL), Antero Resources Corp (NYSE:AR), and Markit Ltd (NASDAQ:MRKT) to get a better sense of its popularity.
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With all of this in mind, let’s take a look at the new action encompassing Packaging Corp Of America (NYSE:PKG).
How are hedge funds trading Packaging Corp Of America (NYSE:PKG)?
Heading into Q4, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -39% from the second quarter. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in Packaging Corp Of America (NYSE:PKG). D E Shaw has an $68.7 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding an $33 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Michael O’Keefe’s 12th Street Asset Management, Kenney Y. Oh’s SeaStone Capital Management and Matthew Hulsizer’s PEAK6 Capital Management.
Due to the fact that Packaging Corp Of America (NYSE:PKG) has faced falling interest from the smart money, we can see that there is a sect of hedge funds who sold off their entire stakes heading into Q4. It’s worth mentioning that Richard McGuire’s Marcato Capital Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $204.2 million in stock. Craig C. Albert’s fund, Sheffield Asset Management, also dropped its stock, about $30.2 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 12 funds heading into Q4.
On the next page, we analyze hedge fund activity of similarly priced stocks to get a better feel on what the elite funds think of PKG.
Let’s now take a look at hedge fund activity in other stocks similar to Packaging Corp Of America (NYSE:PKG). These stocks are Rollins, Inc. (NYSE:ROL), Antero Resources Corp (NYSE:AR), Markit Ltd (NASDAQ:MRKT), and iShares MSCI ACWI Index Fund (NASDAQ:ACWI). All of these stocks’ market caps are similar to PKG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $186 million in PKG’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand iShares MSCI ACWI Index Fund (NASDAQ:ACWI) is the least popular one with only 5 bullish hedge fund positions. Packaging Corp Of America (NYSE:PKG) 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 AR might be a better candidate to consider a long position.