Were Hedge Funds Right About Souring On USG Corporation (USG)?

Is USG Corporation (NYSE:USG) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is USG Corporation (NYSE:USG) a bargain? The smart money is reducing their bets on the stock. The number of long hedge fund bets decreased by 1 lately. Our calculations also showed that USG isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Warren Buffett and Billionaires

Let’s go over the fresh hedge fund action regarding USG Corporation (NYSE:USG).

What have hedge funds been doing with USG Corporation (NYSE:USG)?

Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in USG a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).


When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the most valuable position in USG Corporation (NYSE:USG), worth close to $1.6638 billion, accounting for 0.9% of its total 13F portfolio. Sitting at the No. 2 spot is Magnetar Capital, managed by Alec Litowitz and Ross Laser, which holds a $154.7 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Israel Englander’s Millennium Management, Matthew Halbower’s Pentwater Capital Management and Robert Emil Zoellner’s Alpine Associates.

Due to the fact that USG Corporation (NYSE:USG) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of funds that slashed their positions entirely heading into Q3. It’s worth mentioning that James Dinan’s York Capital Management cut the largest stake of all the hedgies watched by Insider Monkey, worth close to $47.6 million in stock, and Paul Glazer’s Glazer Capital was right behind this move, as the fund dropped about $12.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to USG Corporation (NYSE:USG). We will take a look at Hill-Rom Holdings, Inc. (NYSE:HRC), Sabre Corporation (NASDAQ:SABR), Post Holdings Inc (NYSE:POST), and The Toro Company (NYSE:TTC). This group of stocks’ market caps are similar to USG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HRC 29 650301 5
SABR 24 276021 -7
POST 28 1337378 -1
TTC 21 472099 0
Average 25.5 683950 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $684 million. That figure was $2262 million in USG’s case. Hill-Rom Holdings, Inc. (NYSE:HRC) is the most popular stock in this table. On the other hand The Toro Company (NYSE:TTC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks USG Corporation (NYSE:USG) is even less popular than TTC. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately USG wasn’t in this group. Hedge funds that bet on USG were disappointed as the stock returned 1.7% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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