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In this article we are going to use hedge fund sentiment as a tool and determine whether Allison Transmission Holdings Inc (NYSE:ALSN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is ALSN a good stock to buy? Allison Transmission Holdings Inc (NYSE:ALSN) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. ALSN has seen a decrease in activity from the world's largest hedge funds lately. There were 32 hedge funds in our database with ALSN holdings at the end of June. Our calculations also showed that ALSN 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. With all of this in mind we're going to view the recent hedge fund action regarding Allison Transmission Holdings Inc (NYSE:ALSN).
Do Hedge Funds Think ALSN Is A Good Stock To Buy Now?
At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2020. On the other hand, there were a total of 31 hedge funds with a bullish position in ALSN a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Allison Transmission Holdings Inc (NYSE:ALSN), which was worth $243.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $97.3 million worth of shares. GLG Partners, Citadel Investment Group, and Arrowstreet Capital 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 Factorial Partners allocated the biggest weight to Allison Transmission Holdings Inc (NYSE:ALSN), around 0.77% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.55 percent of its 13F equity portfolio to ALSN.
Due to the fact that Allison Transmission Holdings Inc (NYSE:ALSN) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies who sold off their positions entirely by the end of the third quarter. At the top of the heap, Greg Poole's Echo Street Capital Management sold off the largest investment of the 750 funds monitored by Insider Monkey, comprising about $2.9 million in stock. Lee Ainslie's fund, Maverick Capital, also sold off its stock, about $1.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Allison Transmission Holdings Inc (NYSE:ALSN) but similarly valued. These stocks are Wright Medical Group N.V. (NASDAQ:WMGI), Medpace Holdings, Inc. (NASDAQ:MEDP), Healthequity Inc (NASDAQ:HQY), YETI Holdings, Inc. (NYSE:YETI), Cirrus Logic, Inc. (NASDAQ:CRUS), First Financial Bankshares Inc (NASDAQ:FFIN), and Envista Holdings Corporation (NYSE:NVST). This group of stocks' market values are similar to ALSN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMGI,40,1066141,2 MEDP,31,309579,9 HQY,24,225566,6 YETI,29,121199,7 CRUS,26,357380,-7 FFIN,17,26509,-1 NVST,20,417907,-1 Average,26.7,360612,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $361 million. That figure was $585 million in ALSN's case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 17 bullish hedge fund positions. Allison Transmission Holdings Inc (NYSE:ALSN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALSN is 53.8. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on ALSN as the stock returned 23.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.