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 Autoliv Inc. (NYSE:ALV).
Is ALV a good stock to buy now? Investors who are in the know were selling. The number of long hedge fund positions retreated by 3 in recent months. Autoliv Inc. (NYSE:ALV) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that ALV 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). There were 22 hedge funds in our database with ALV holdings at the end of June.
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 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 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 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.
Christer Gardell Cevian Capital
Christer Gardell of Cevian Capital
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. Keeping this in mind let's take a gander at the fresh hedge fund action encompassing Autoliv Inc. (NYSE:ALV).
Do Hedge Funds Think ALV Is A Good Stock To Buy Now?
At third quarter's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in ALV a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Christer Gardell and Lars Forberg's Cevian Capital has the largest position in Autoliv Inc. (NYSE:ALV), worth close to $430.6 million, corresponding to 78.5% of its total 13F portfolio. The second largest stake is held by Brandon Haley of Holocene Advisors, with a $121.5 million position; 0.9% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions consist of Peter Lewis's LFL Advisers, Cliff Asness's AQR Capital Management and Steve Cohen's Point72 Asset Management. In terms of the portfolio weights assigned to each position Cevian Capital allocated the biggest weight to Autoliv Inc. (NYSE:ALV), around 78.5% of its 13F portfolio. LFL Advisers is also relatively very bullish on the stock, designating 13.02 percent of its 13F equity portfolio to ALV.
Due to the fact that Autoliv Inc. (NYSE:ALV) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that elected to cut their entire stakes heading into Q4. Interestingly, Renaissance Technologies said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, comprising about $7.4 million in stock, and Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management was right behind this move, as the fund cut about $3.1 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Autoliv Inc. (NYSE:ALV) but similarly valued. These stocks are The Gap Inc. (NYSE:GPS), SolarWinds Corporation (NYSE:SWI), Gentex Corporation (NASDAQ:GNTX), Gerdau SA (NYSE:GGB), Commerce Bancshares, Inc. (NASDAQ:CBSH), Perrigo Co Plc (NYSE:PRGO), and CubeSmart (NYSE:CUBE). This group of stocks' market valuations match ALV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GPS,35,634886,-3 SWI,15,2718441,-4 GNTX,40,603326,2 GGB,11,134303,1 CBSH,15,50769,-1 PRGO,29,370821,-4 CUBE,18,229025,-6 Average,23.3,677367,-2.1 [/table]
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $630 million in ALV's case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 11 bullish hedge fund positions. Autoliv Inc. (NYSE:ALV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALV is 41.7. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ALV as the stock returned 24.2% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
