We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Advanced Emissions Solutions, Inc. (NASDAQ:ADES).
Hedge fund interest in Advanced Emissions Solutions, Inc. (NASDAQ:ADES) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ADES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare ADES to other stocks including Idera Pharmaceuticals Inc (NASDAQ:IDRA), Rockwell Medical Inc (NASDAQ:RMTI), and First Eagle Alternative Capital BDC, Inc. (NASDAQ:FCRD) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now let’s go over the key hedge fund action surrounding Advanced Emissions Solutions, Inc. (NASDAQ:ADES).
How are hedge funds trading Advanced Emissions Solutions, Inc. (NASDAQ:ADES)?
At third quarter’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in ADES a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Advanced Emissions Solutions, Inc. (NASDAQ:ADES) was held by Alta Fundamental Advisers, which reported holding $8 million worth of stock at the end of September. It was followed by Adage Capital Management with a $3 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Alta Fundamental Advisers allocated the biggest weight to Advanced Emissions Solutions, Inc. (NASDAQ:ADES), around 8.45% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to ADES.
Judging by the fact that Advanced Emissions Solutions, Inc. (NASDAQ:ADES) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that elected to cut their entire stakes last quarter. Intriguingly, Cliff Asness’s AQR Capital Management dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $0.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $0.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Advanced Emissions Solutions, Inc. (NASDAQ:ADES) but similarly valued. We will take a look at Idera Pharmaceuticals Inc (NASDAQ:IDRA), Rockwell Medical Inc (NASDAQ:RMTI), First Eagle Alternative Capital BDC, Inc. (NASDAQ:FCRD), Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), Armstrong Flooring, Inc. (NYSE:AFI), Consumer Portfolio Services, Inc. (NASDAQ:CPSS), and Issuer Direct Corporation (NYSE:ISDR). All of these stocks’ market caps resemble ADES’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.7 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $13 million in ADES’s case. Armstrong Flooring, Inc. (NYSE:AFI) is the most popular stock in this table. On the other hand Consumer Portfolio Services, Inc. (NASDAQ:CPSS) is the least popular one with only 1 bullish hedge fund positions. Advanced Emissions Solutions, Inc. (NASDAQ:ADES) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADES is 53.3. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on ADES as the stock returned 31.8% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.