Were Hedge Funds Right About Selling Americold Realty Trust (COLD)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Americold Realty Trust (NYSE:COLD).

Is Americold Realty Trust (NYSE:COLD) a sound investment now? Money managers were cutting their exposure. The number of long hedge fund bets were trimmed by 13 in recent months. Americold Realty Trust (NYSE:COLD) was in 16 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 31. Our calculations also showed that COLD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Howard Marks of Oaktree Capital

Howard Marks of Oaktree Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the recent hedge fund action encompassing Americold Realty Trust (NYSE:COLD).

Do Hedge Funds Think COLD Is A Good Stock To Buy Now?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -45% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in COLD a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Americold Realty Trust (NYSE:COLD) was held by Oaktree Capital Management, which reported holding $452.9 million worth of stock at the end of December. It was followed by Zimmer Partners with a $203.9 million position. Other investors bullish on the company included Millennium Management, Waterfront Capital Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Oaktree Capital Management allocated the biggest weight to Americold Realty Trust (NYSE:COLD), around 6.95% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 4.6 percent of its 13F equity portfolio to COLD.

Because Americold Realty Trust (NYSE:COLD) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies that slashed their entire stakes by the end of the first quarter. Intriguingly, Jonathan Soros’s JS Capital cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at close to $29.1 million in stock, and William Hyatt’s Hudson Way Capital Management was right behind this move, as the fund said goodbye to about $18.2 million worth. These moves are interesting, as total hedge fund interest fell by 13 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Americold Realty Trust (NYSE:COLD) but similarly valued. We will take a look at Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Reliance Steel & Aluminum Co. (NYSE:RS), Algonquin Power & Utilities Corp. (NYSE:AQN), Magellan Midstream Partners, L.P. (NYSE:MMP), Owens Corning (NYSE:OC), Athene Holding Ltd. (NYSE:ATH), and Morningstar, Inc. (NASDAQ:MORN). This group of stocks’ market valuations match COLD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KOF 10 404064 4
RS 18 284275 -9
AQN 10 172616 -5
MMP 14 85039 -8
OC 30 284972 -8
ATH 44 1349076 8
MORN 25 1044340 6
Average 21.6 517769 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $518 million. That figure was $805 million in COLD’s case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 10 bullish hedge fund positions. Americold Realty Trust (NYSE:COLD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for COLD is 16.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately COLD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); COLD investors were disappointed as the stock returned 2.7% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

Follow Americold Realty Trust (NYSE:COLD)

Suggested Articles:

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