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Is Arconic Corporation (ARNC) Going to Burn These Hedge Funds?

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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Arconic Corporation (NYSE:ARNC) changed recently.

Arconic Corporation (NYSE:ARNC) investors should be aware of an increase in support from the world's most elite money managers lately. Arconic Corporation (NYSE:ARNC) was in 30 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 46. Our calculations also showed that ARNC isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

Didric Cederholm Lion Point Capital
Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks 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. With all of this in mind let's view the recent hedge fund action encompassing Arconic Corporation (NYSE:ARNC).

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

Heading into the third quarter of 2021, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ARNC over the last 24 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Orbis Investment Management held the most valuable stake in Arconic Corporation (NYSE:ARNC), which was worth $378.9 million at the end of the second quarter. On the second spot was Elliott Investment Management which amassed $370.1 million worth of shares. Lion Point, Rubric Capital Management, and Fisher Asset Management 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 Brightline Capital allocated the biggest weight to Arconic Corporation (NYSE:ARNC), around 12.47% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, dishing out 7.86 percent of its 13F equity portfolio to ARNC.

As industrywide interest jumped, specific money managers have jumped into Arconic Corporation (NYSE:ARNC) headfirst. Rubric Capital Management, managed by David Rosen, created the most outsized position in Arconic Corporation (NYSE:ARNC). Rubric Capital Management had $45.3 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also made a $13.1 million investment in the stock during the quarter. The other funds with brand new ARNC positions are Steven Tananbaum's GoldenTree Asset Management, Louis Bacon's Moore Global Investments, and Jinghua Yan's TwinBeech Capital.

Let's now review hedge fund activity in other stocks similar to Arconic Corporation (NYSE:ARNC). We will take a look at Korn Ferry (NYSE:KFY), Brighthouse Financial, Inc. (NASDAQ:BHF), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), Cushman & Wakefield plc (NYSE:CWK), Ormat Technologies, Inc. (NYSE:ORA), Freedom Holding Corp. (NASDAQ:FRHC), and National Storage Affiliates Trust (NYSE:NSA). This group of stocks' market values match ARNC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KFY,21,247721,5 BHF,26,494240,-2 ACAD,21,1390015,-12 CWK,23,245483,4 ORA,21,242956,4 FRHC,13,64432,1 NSA,20,208028,6 Average,20.7,413268,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $1000 million in ARNC's case. Brighthouse Financial, Inc. (NASDAQ:BHF) is the most popular stock in this table. On the other hand Freedom Holding Corp. (NASDAQ:FRHC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Arconic Corporation (NYSE:ARNC) is more popular among hedge funds. Our overall hedge fund sentiment score for ARNC is 78.6. 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 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Unfortunately ARNC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ARNC were disappointed as the stock returned -10.9% since the end of the second quarter (through 10/15) 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 most of these stocks already outperformed the market since 2019.

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