The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Phibro Animal Health Corporation (NASDAQ:PAHC) and find out how it is affected by hedge funds’ moves.
Phibro Animal Health Corporation (NASDAQ:PAHC) was in 16 hedge funds’ portfolios at the end of the second quarter of 2019. PAHC has experienced a decrease in hedge fund sentiment lately. There were 18 hedge funds in our database with PAHC positions at the end of the previous quarter. Our calculations also showed that PAHC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the fresh hedge fund action encompassing Phibro Animal Health Corporation (NASDAQ:PAHC).
What have hedge funds been doing with Phibro Animal Health Corporation (NASDAQ:PAHC)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAHC over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Phibro Animal Health Corporation (NASDAQ:PAHC) was held by Renaissance Technologies, which reported holding $24 million worth of stock at the end of March. It was followed by Cove Street Capital with a $7 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Millennium Management.
Due to the fact that Phibro Animal Health Corporation (NASDAQ:PAHC) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of money managers who sold off their entire stakes in the second quarter. It’s worth mentioning that Ian Cumming and Joseph Steinberg’s Leucadia National said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, totaling an estimated $1.1 million in stock. John D. Gillespie’s fund, Prospector Partners, also dumped its stock, about $1.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds in the second quarter.
Let’s go over hedge fund activity in other stocks similar to Phibro Animal Health Corporation (NASDAQ:PAHC). These stocks are Hudson Ltd. (NYSE:HUD), Sangamo Therapeutics, Inc. (NASDAQ:SGMO), PBF Logistics LP (NYSE:PBFX), and Ferro Corporation (NYSE:FOE). All of these stocks’ market caps match PAHC’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 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $60 million in PAHC’s case. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 3 bullish hedge fund positions. Phibro Animal Health Corporation (NASDAQ:PAHC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PAHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PAHC were disappointed as the stock returned -32.5% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.