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

Nina Todic

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of June 28th. In this article, we look at what those funds think of Arconic Inc. (NYSE:ARNC) based on that data.

Arconic Inc. (NYSE:ARNC) has seen an increase in hedge fund sentiment of late. ARNC was in 42 hedge funds' portfolios at the end of June. There were 34 hedge funds in our database with ARNC positions at the end of the previous quarter. Our calculations also showed that ARNC isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Paul Singer ELLIOTT MANAGEMENT

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 take a look at the recent hedge fund action encompassing Arconic Inc. (NYSE:ARNC).

What does smart money think about Arconic Inc. (NYSE:ARNC)?

At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ARNC over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ARNC Positions

When looking at the institutional investors followed by Insider Monkey, Paul Singer's Elliott Management has the number one position in Arconic Inc. (NYSE:ARNC), worth close to $1.3401 billion, corresponding to 9% of its total 13F portfolio. The second largest stake is held by First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, which holds a $679.2 million position; 5.9% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain William B. Gray's Orbis Investment Management, Michael Lowenstein's Kensico Capital and D. E. Shaw's D E Shaw.

As one would reasonably expect, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most outsized position in Arconic Inc. (NYSE:ARNC). Millennium Management had $20.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $16.7 million investment in the stock during the quarter. The other funds with brand new ARNC positions are Zach Schreiber's Point State Capital, Bruce Kovner's Caxton Associates LP, and Alexander Mitchell's Scopus Asset Management.

Let's now take a look at hedge fund activity in other stocks similar to Arconic Inc. (NYSE:ARNC). These stocks are Jacobs Engineering Group Inc (NYSE:JEC), Advance Auto Parts, Inc. (NYSE:AAP), Devon Energy Corporation (NYSE:DVN), and Zebra Technologies Corporation (NASDAQ:ZBRA). This group of stocks' market caps resemble ARNC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JEC,32,1045023,-1 AAP,37,1458234,-10 DVN,36,1412120,-4 ZBRA,20,635734,-15 Average,31.25,1137778,-7.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1138 million. That figure was $3396 million in ARNC's case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Zebra Technologies Corporation (NASDAQ:ZBRA) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Arconic Inc. (NYSE:ARNC) is more popular among hedge funds. 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 ARNC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ARNC were disappointed as the stock returned 0.8% 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 in Q3. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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