Hedge Funds Are Selling Acuity Brands, Inc. (AYI)

Nina Todic

Mon, Oct 14, 2019, 6:44 PM

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Acuity Brands, Inc. (NYSE:AYI) to find out whether it was one of their high conviction long-term ideas.

Is Acuity Brands, Inc. (NYSE:AYI) the right pick for your portfolio? Money managers are taking a bearish view. The number of bullish hedge fund positions dropped by 6 recently. Our calculations also showed that AYI isn't among the 30 most popular stocks among hedge funds. AYI was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 29 hedge funds in our database with AYI positions at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the latest hedge fund action regarding Acuity Brands, Inc. (NYSE:AYI).

What does smart money think about Acuity Brands, Inc. (NYSE:AYI)?

At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in AYI a year ago. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Generation Investment Management held the most valuable stake in Acuity Brands, Inc. (NYSE:AYI), which was worth $465.2 million at the end of the second quarter. On the second spot was International Value Advisers which amassed $206.9 million worth of shares. Moreover, Renaissance Technologies, AQR Capital Management, and Arrowstreet Capital were also bullish on Acuity Brands, Inc. (NYSE:AYI), allocating a large percentage of their portfolios to this stock.

Since Acuity Brands, Inc. (NYSE:AYI) has witnessed falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their full holdings by the end of the second quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dumped the largest position of the 750 funds followed by Insider Monkey, worth close to $10.4 million in stock. Louis Bacon's fund, Moore Global Investments, also cut its stock, about $5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the second quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Acuity Brands, Inc. (NYSE:AYI) but similarly valued. These stocks are Grupo Televisa SAB (NYSE:TV), Qurate Retail, Inc. (NASDAQ:QRTEA), Capri Holdings Limited (NYSE:CPRI), and XPO Logistics Inc (NYSE:XPO). This group of stocks' market caps are similar to AYI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TV,18,719110,2 QRTEA,33,639765,0 CPRI,35,808989,-2 XPO,24,2275608,-2 Average,27.5,1110868,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1111 million. That figure was $929 million in AYI's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 18 bullish hedge fund positions. Acuity Brands, Inc. (NYSE:AYI) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AYI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AYI investors were disappointed as the stock returned -2.2% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.