Is PGT Innovations Inc. (PGTI) Going to Burn These Hedge Funds?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 PGT Innovations Inc. (NYSE:PGTI).

PGT Innovations Inc. (NYSE:PGTI) shareholders have witnessed a decrease in enthusiasm from smart money of late. PGTI was in 17 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with PGTI holdings at the end of the previous quarter. Our calculations also showed that PGTI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the recent hedge fund action surrounding PGT Innovations Inc. (NYSE:PGTI).

What have hedge funds been doing with PGT Innovations Inc. (NYSE:PGTI)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in PGTI a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of PGT Innovations Inc. (NYSE:PGTI), with a stake worth $51.9 million reported as of the end of September. Trailing Renaissance Technologies was Broad Bay Capital, which amassed a stake valued at $19.8 million. ACK Asset Management, Royce & Associates, and Driehaus Capital 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 Spitfire Capital allocated the biggest weight to PGT Innovations Inc. (NYSE:PGTI), around 6.75% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, dishing out 5.3 percent of its 13F equity portfolio to PGTI.

Judging by the fact that PGT Innovations Inc. (NYSE:PGTI) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dropped the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $0.6 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to PGT Innovations Inc. (NYSE:PGTI). We will take a look at Orion Engineered Carbons SA (NYSE:OEC), Funko, Inc. (NASDAQ:FNKO), Warrior Met Coal, Inc. (NYSE:HCC), and Silk Road Medical, Inc. (NASDAQ:SILK). This group of stocks’ market values resemble PGTI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OEC 18 209028 1
FNKO 23 97803 6
HCC 27 233578 -4
SILK 7 52706 -4
Average 18.75 148279 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $119 million in PGTI’s case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Silk Road Medical, Inc. (NASDAQ:SILK) is the least popular one with only 7 bullish hedge fund positions. PGT Innovations Inc. (NYSE:PGTI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PGTI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PGTI investors were disappointed as the stock returned -16.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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