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Were Hedge Funds Right About Boise Cascade Co (BCC)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Boise Cascade Co (NYSE:BCC).

Is Boise Cascade Co (NYSE:BCC) going to take off soon? Investors who are in the know are getting more bullish. The number of bullish hedge fund bets inched up by 9 recently. Our calculations also showed that BCC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BCC was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 15 hedge funds in our database with BCC positions at the end of the previous quarter.

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 S&P 500 ETFs by 41 percentage points since March 2017 (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.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the key hedge fund action regarding Boise Cascade Co (NYSE:BCC).

What have hedge funds been doing with Boise Cascade Co (NYSE:BCC)?

At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in BCC over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Boise Cascade Co (NYSE:BCC), worth close to $12.3 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $10 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Renaissance Technologies, Noam Gottesman’s GLG Partners and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Boise Cascade Co (NYSE:BCC), around 0.54% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, designating 0.15 percent of its 13F equity portfolio to BCC.

As industrywide interest jumped, some big names were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Boise Cascade Co (NYSE:BCC). Arrowstreet Capital had $6 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $5.7 million position during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Boise Cascade Co (NYSE:BCC) but similarly valued. We will take a look at Tennant Company (NYSE:TNC), Safety Insurance Group, Inc. (NASDAQ:SAFT), American Finance Trust, Inc. (NASDAQ:AFIN), and TriMas Corp (NASDAQ:TRS). This group of stocks’ market values are closest to BCC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNC 11 109526 0
SAFT 15 47499 5
AFIN 8 25024 -1
TRS 15 113854 0
Average 12.25 73976 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $78 million in BCC’s case. Safety Insurance Group, Inc. (NASDAQ:SAFT) is the most popular stock in this table. On the other hand American Finance Trust, Inc. (NASDAQ:AFIN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Boise Cascade Co (NYSE:BCC) 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately BCC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BCC were disappointed as the stock returned -16.7% during the four months of 2020 (through May 1st) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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