Were Hedge Funds Right About Accel Entertainment, Inc. (ACEL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Accel Entertainment, Inc. (NYSE:ACEL) and determine whether hedge funds skillfully traded this stock.

Is Accel Entertainment, Inc. (NYSE:ACEL) the right pick for your portfolio? Investors who are in the know were becoming hopeful. The number of bullish hedge fund bets went up by 3 lately. Our calculations also showed that ACEL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Talpins of Element Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the fresh hedge fund action encompassing Accel Entertainment, Inc. (NYSE:ACEL).

How have hedgies been trading Accel Entertainment, Inc. (NYSE:ACEL)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACEL over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Crescent Park Management held the most valuable stake in Accel Entertainment, Inc. (NYSE:ACEL), which was worth $17.8 million at the end of the third quarter. On the second spot was Simcoe Capital Management which amassed $15.9 million worth of shares. Millennium Management, Element Capital Management, and Hudson Bay Capital 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 Simcoe Capital Management allocated the biggest weight to Accel Entertainment, Inc. (NYSE:ACEL), around 4.88% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, earmarking 4.77 percent of its 13F equity portfolio to ACEL.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Wildcat Capital Management, managed by Leonard A. Potter, initiated the most outsized position in Accel Entertainment, Inc. (NYSE:ACEL). Wildcat Capital Management had $4.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.1 million position during the quarter. The other funds with new positions in the stock are Andrew Weiss’s Weiss Asset Management and Bart Baum’s Ionic Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Accel Entertainment, Inc. (NYSE:ACEL) but similarly valued. These stocks are Changyou.Com Ltd (NASDAQ:CYOU), Universal Insurance Holdings, Inc. (NYSE:UVE), Virtus Investment Partners Inc (NASDAQ:VRTS), and Franks International NV (NYSE:FI). This group of stocks’ market values are closest to ACEL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CYOU 10 72996 -3
UVE 11 35019 -2
VRTS 12 40961 -2
FI 7 5437 -3
Average 10 38603 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $70 million in ACEL’s case. Virtus Investment Partners Inc (NASDAQ:VRTS) is the most popular stock in this table. On the other hand Franks International NV (NYSE:FI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Accel Entertainment, Inc. (NYSE:ACEL) is more popular among hedge funds. 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately ACEL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ACEL were disappointed as the stock returned 13.9% since the end of the first 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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