Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Pivotal Investment Corporation II (NYSE:PIC)? The smart money sentiment can provide an answer to this question.
Is Pivotal Investment Corporation II (NYSE:PIC) worth your attention right now? Hedge funds are in a bullish mood. The number of bullish hedge fund bets increased by 15 lately. Our calculations also showed that PIC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). PIC was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. There were 0 hedge funds in our database with PIC positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Nathaniel August of Mangrove Partners
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 latest hedge fund action regarding Pivotal Investment Corporation II (NYSE:PIC).
What have hedge funds been doing with Pivotal Investment Corporation II (NYSE:PIC)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15 from the previous quarter. The graph below displays the number of hedge funds with bullish position in PIC over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Magnetar Capital held the most valuable stake in Pivotal Investment Corporation II (NYSE:PIC), which was worth $12.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $7.2 million worth of shares. Mangrove Partners, HBK Investments, and Moore Global Investments 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 Vertex One Asset Management allocated the biggest weight to Pivotal Investment Corporation II (NYSE:PIC), around 0.79% of its 13F portfolio. Mangrove Partners is also relatively very bullish on the stock, earmarking 0.62 percent of its 13F equity portfolio to PIC.
As industrywide interest jumped, key hedge funds have jumped into Pivotal Investment Corporation II (NYSE:PIC) headfirst. Magnetar Capital, managed by Alec Litowitz and Ross Laser, created the most valuable position in Pivotal Investment Corporation II (NYSE:PIC). Magnetar Capital had $12.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $7.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Nathaniel August’s Mangrove Partners, David Costen Haley’s HBK Investments, and Louis Bacon’s Moore Global Investments.
Let’s go over hedge fund activity in other stocks similar to Pivotal Investment Corporation II (NYSE:PIC). We will take a look at Lumber Liquidators Holdings Inc (NYSE:LL), J.C. Penney Company, Inc. (NYSE:JCP), Calumet Specialty Products Partners, L.P (NASDAQ:CLMT), and Timkensteel Corp (NYSE:TMST). This group of stocks’ market valuations are closest to PIC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LL | 10 | 20454 | -3 |
| JCP | 18 | 27425 | 6 |
| CLMT | 5 | 8800 | 0 |
| TMST | 14 | 38476 | -2 |
| Average | 11.75 | 23789 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $51 million in PIC’s case. J.C. Penney Company, Inc. (NYSE:JCP) is the most popular stock in this table. On the other hand Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) is the least popular one with only 5 bullish hedge fund positions. Pivotal Investment Corporation II (NYSE:PIC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PIC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PIC were disappointed as the stock returned 0.2% during the fourth quarter (through the end of November) 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.