Hedge Funds Have Never Been This Bullish On Albany International Corp. (AIN)

Debasis Saha

Sat, Mar 28, 2020, 6:37 PM 6 min read

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Albany International Corp. (NYSE:AIN) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending 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 employ 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 Albany International Corp. (NYSE:AIN) a bargain? Hedge funds are getting more bullish. The number of long hedge fund bets rose by 5 in recent months. Our calculations also showed that AIN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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 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.

[caption id="attachment_745225" align="aligncenter" width="400"]

Noam Gottesman of GLG Partners[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the fresh hedge fund action surrounding Albany International Corp. (NYSE:AIN).

How are hedge funds trading Albany International Corp. (NYSE:AIN)?

At Q4's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AIN over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in Albany International Corp. (NYSE:AIN) was held by Renaissance Technologies, which reported holding $41.5 million worth of stock at the end of September. It was followed by GLG Partners with a $9.5 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Albany International Corp. (NYSE:AIN), around 0.09% of its 13F portfolio. TwinBeech Capital is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to AIN.

As one would reasonably expect, key money managers have jumped into Albany International Corp. (NYSE:AIN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Albany International Corp. (NYSE:AIN). Arrowstreet Capital had $8.1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $7.8 million investment in the stock during the quarter. The other funds with brand new AIN positions are Dmitry Balyasny's Balyasny Asset Management, Donald Sussman's Paloma Partners, and Paul Tudor Jones's Tudor Investment Corp.

Let's go over hedge fund activity in other stocks similar to Albany International Corp. (NYSE:AIN). These stocks are Golub Capital BDC Inc (NASDAQ:GBDC), LivePerson, Inc. (NASDAQ:LPSN), Crescent Point Energy Corp (NYSE:CPG), and Evertec Inc (NYSE:EVTC). This group of stocks' market valuations resemble AIN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GBDC,16,117101,4 LPSN,23,202344,7 CPG,14,73177,2 EVTC,19,270812,-7 Average,18,165859,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $96 million in AIN's case. LivePerson, Inc. (NASDAQ:LPSN) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 14 bullish hedge fund positions. Albany International Corp. (NYSE:AIN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AIN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AIN were disappointed as the stock returned -46.2% during the same time period 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 many of these stocks already outperformed the market so far this year.