Were Hedge Funds Right About Dumping Astronics Corporation (ATRO)?

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 Astronics Corporation (NASDAQ:ATRO).

Astronics Corporation (NASDAQ:ATRO) investors should pay attention to a decrease in support from the world’s most elite money managers lately. ATRO was in 13 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with ATRO holdings at the end of the previous quarter. Our calculations also showed that ATRO 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.

Chuck Royce

Chuck Royce of Royce & Associates

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 glance at the latest hedge fund action surrounding Astronics Corporation (NASDAQ:ATRO).

How are hedge funds trading Astronics Corporation (NASDAQ:ATRO)?

At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATRO over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Astronics Corporation (NASDAQ:ATRO) was held by International Value Advisers, which reported holding $60.6 million worth of stock at the end of September. It was followed by ACK Asset Management with a $19.2 million position. Other investors bullish on the company included AQR Capital Management, Royce & Associates, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position ACK Asset Management allocated the biggest weight to Astronics Corporation (NASDAQ:ATRO), around 5.4% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, dishing out 2.25 percent of its 13F equity portfolio to ATRO.

Due to the fact that Astronics Corporation (NASDAQ:ATRO) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that decided to sell off their entire stakes last quarter. Intriguingly, Israel Englander’s Millennium Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, totaling about $13.6 million in stock. Renaissance Technologies, also said goodbye to its stock, about $4.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Astronics Corporation (NASDAQ:ATRO). These stocks are Range Resources Corporation (NYSE:RRC), Noble Midstream Partners LP (NYSE:NBLX), Office Depot Inc (NASDAQ:ODP), and TiVo Corporation (NASDAQ:TIVO). All of these stocks’ market caps are similar to ATRO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RRC 26 263175 -5
NBLX 4 2598 0
ODP 16 61845 -4
TIVO 21 95965 2
Average 16.75 105896 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $103 million in ATRO’s case. Range Resources Corporation (NYSE:RRC) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. Astronics Corporation (NASDAQ:ATRO) 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 ATRO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ATRO investors were disappointed as the stock returned -0.8% 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.