Do hedge funds like Alliance Data Systems Corporation (ADS)?
At the end of February, we announced the arrival of the first US recession since 2009 and we predicted that the market will fall by at least 20% in (see why hell is happening). We reversed our stance on March 25 after seeing unprecedented fiscal and monetary stimulus triggered by the Fed and Congress. It’s the perfect market for stock pickers now that stocks are fully valued again. In these volatile markets, we take a close look at hedge fund deposits to get a reading of the direction each stock might take. In this article, we’ll take a closer look at hedge fund sentiment toward Alliance Data Systems Corporation (NYSE:ADS) at the end of the second quarter and determine if smart money was really smart about that stock.
East Alliance Data Systems Corporation (NYSE:ADS) a good investment now? The fund managers were in a pessimistic mood. The number of bullish bets on hedge funds has fallen by 1 recently. Alliance Data Systems Corporation (NYSE:ADS) was in the portfolios of 29 hedge funds at the end of the second quarter of 2020. The all-time high for this statistic is 45. Our calculations have also shown that ADS is not among the 30 most popular stocks among hedge funds (click for the Q2 leaderboard and watch the video for a quick overview of the top 5 stocks). There were 30 hedge funds in our database with ADS positions at the end of the first quarter.
Video: Watch our video on the 5 most popular hedge fund stocks.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 58 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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At Insider Monkey, we leave no stone unturned when we research the next big investment idea. For example, this “mom” shopkeeper turned $ 2,000 into $ 2 million in 2 years. So we check his best exchange idea of the month. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. We go through lists like the 10 most profitable companies around the world to choose the best large-cap stocks to buy. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. With all of that in mind, let’s take a look at the latest hedge fund action regarding Alliance Data Systems Corporation (NYSE:ADS).
What did hedge funds do with Alliance Data Systems Corporation (NYSE: ADS)?
At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position on ADS a year ago. So let’s take a look at which hedge funds were among the top stock holders and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Andrew Wellington and Jeff Keswin’s Lyrical Asset Management holds the largest position in Alliance Data Systems Corporation (NYSE: ADS), worth nearly $ 79.3 million. of dollars, or 1.6% of its total portfolio 13F. The second most optimistic fund manager is DE Shaw, managed by DE Shaw, which has a position of $ 69 million; 0.1% of its 13F portfolio is allocated to securities. Other professional fund managers with similar optimism contain Cliff Asness AQR Capital management, Peter Rathjens, Bruce Clarke and Arrowstreet Capital by John Campbell and Point72 Asset Management by Steve Cohen. In terms of portfolio weights assigned to each position Pacifica Capital Investments assigned the largest weighting to Alliance Data Systems Corporation (NYSE: ADS), approximately 4.44% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, allocating 1.56% of its 13F equity portfolio to ADS.
Given that Alliance Data Systems Corporation (NYSE: ADS) has seen a decline in interest from the aggregate hedge fund industry, logic dictates that there is a fund cult that has reduced its entire holdings. in the second trimester. At the top of the heap, Allan Mecham’s Arlington Value Capital dropped the largest stake of all hedges followed by Insider Monkey, comprising around $ 23.7 million in stock, and Bo Shan’s Gobi Capital was right behind the move, with the fund selling around $ 9.9 million. These bearish behaviors are interesting, as overall hedge fund interest fell by 1 fund in the second quarter.
Let’s look at hedge fund activity in other stocks – not necessarily in the same industry as Alliance Data Systems Corporation (NYSE: ADS) but of similar value. These shares are Coca-Cola Consolidated Inc. (NASDAQ:COKE), Copa Holdings, SA (NYSE:CPA), GrafTech International Ltd. (NYSE:AEP), Macy’s, Inc. (NYSE:M), GATX Corporation (NYSE:GATX), Investors Bancorp, Inc. (NASDAQ:VSI) and AMN Healthcare Services Inc (NYSE:AMN). The market valuations of this group of stocks resemble the market valuation of ADS.
[table] Ticker, number of HF with positions, total value of HF positions (x1000), change of HF COKE position, 13.18558.4 CPA, 24.213886.9 EAF, 24.125189.1 M, 36.412417.6 GATX , 17,152806,4 VSI, 25,127448, -1 AMN, 21.61749, -1 Average, 22.9,158865,3,1 [/table]
See the table here if you have formatting problems.
As you can see, these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $ 159 million. That figure was $ 345 million in the case of ADS. Macy’s, Inc. (NYSE:M) is the most popular action in this table. On the other hand, Coca-Cola Consolidated Inc. (NASDAQ:COKE) is the least popular with only 13 bullish hedge fund positions. Alliance Data Systems Corporation (NYSE: ADS) isn’t the most popular stock in this group, but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADS is 58.1. Stocks with a 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 positive signal, but we prefer to spend our time researching the stocks on which hedge funds are accumulating. Our calculations have shown that top 10 most popular stocks among hedge funds, it returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14 and beat the market by 17.6 percentage points. Sadly, ADS was not as popular as these 10 stocks and hedge funds that bet on ADS were disappointed as the stock returned 3.1% over the same time period and underperformed the Marlet. If you want to invest in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds, as many of these stocks have already outperformed the market so far this year.
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Disclosure: none. This article originally appeared on Monkey initiate.