Hedge Funds Are Dumping Summit Materials Inc (SUM)

·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Summit Materials Inc (NYSE:SUM) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is Summit Materials Inc (NYSE:SUM) the right investment to pursue these days? Money managers were reducing their bets on the stock. The number of long hedge fund bets went down by 12 lately. Summit Materials Inc (NYSE:SUM) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistic is 35. Our calculations also showed that SUM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most market participants, hedge funds are seen as slow, old financial tools of the past. While there are greater than 8000 funds trading today, We choose to focus on the elite of this club, approximately 850 funds. Most estimates calculate that this group of people watch over the lion's share of all hedge funds' total capital, and by paying attention to their finest picks, Insider Monkey has discovered numerous investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

David Harding
David Harding

David Harding of Winton Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to take a look at the key hedge fund action surrounding Summit Materials Inc (NYSE:SUM).

Do Hedge Funds Think SUM Is A Good Stock To Buy Now?

At second quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SUM over the last 24 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

More specifically, Driehaus Capital was the largest shareholder of Summit Materials Inc (NYSE:SUM), with a stake worth $26.3 million reported as of the end of June. Trailing Driehaus Capital was Citadel Investment Group, which amassed a stake valued at $24.3 million. DG Capital Management, Citadel Investment Group, and Moore Global Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position DG Capital Management allocated the biggest weight to Summit Materials Inc (NYSE:SUM), around 5.1% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 3.57 percent of its 13F equity portfolio to SUM.

Since Summit Materials Inc (NYSE:SUM) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of funds that decided to sell off their entire stakes last quarter. Interestingly, Wallace Weitz's Wallace R. Weitz & Co. said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, comprising about $36.4 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund dumped about $27.7 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 12 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Summit Materials Inc (NYSE:SUM) but similarly valued. These stocks are Enel Chile S.A. (NYSE:ENIC), TechnipFMC plc (NYSE:FTI), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), PS Business Parks Inc (NYSE:PSB), Community Bank System, Inc. (NYSE:CBU), Yamana Gold Inc. (NYSE:AUY), and Rackspace Technology, Inc. (NASDAQ:RXT). This group of stocks' market valuations match SUM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENIC,7,20092,0 FTI,25,442009,0 TKC,7,1874,-1 PSB,16,111109,4 CBU,6,17024,-2 AUY,16,129402,-5 RXT,18,50843,7 Average,13.6,110336,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $110 million in SUM's case. TechnipFMC plc (NYSE:FTI) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 6 bullish hedge fund positions. Summit Materials Inc (NYSE:SUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SUM is 47. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately SUM wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SUM were disappointed as the stock returned 0.5% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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