While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Autohome Inc (NYSE:ATHM).
Autohome Inc (NYSE:ATHM) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as CF Industries Holdings, Inc. (NYSE:CF), Everest Re Group Ltd (NYSE:RE), and Avery Dennison Corporation (NYSE:AVY) to gather more data points. Our calculations also showed that Autohome isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, 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 glance at the key hedge fund action surrounding Autohome Inc (NYSE:ATHM).
How have hedgies been trading Autohome Inc (NYSE:ATHM)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATHM over the last 16 quarters. 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, Orbis Investment Management held the most valuable stake in Autohome Inc (NYSE:ATHM), which was worth $891.6 million at the end of the second quarter. On the second spot was Platinum Asset Management which amassed $114.2 million worth of shares. Moreover, D E Shaw, AQR Capital Management, and Driehaus Capital were also bullish on Autohome Inc (NYSE:ATHM), allocating a large percentage of their portfolios to this stock.
Since Autohome Inc (NYSE:ATHM) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that decided to sell off their positions entirely in the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $17.8 million in call options. Matthew Hulsizer's fund, PEAK6 Capital Management, also dropped its call options, about $3.2 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Autohome Inc (NYSE:ATHM). These stocks are CF Industries Holdings, Inc. (NYSE:CF), Everest Re Group Ltd (NYSE:RE), Avery Dennison Corporation (NYSE:AVY), and Under Armour Inc (NYSE:UA). This group of stocks' market values resemble ATHM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CF,35,954259,3 RE,23,625474,4 AVY,21,242510,-2 UA,38,1083451,8 Average,29.25,726424,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $726 million. That figure was $1114 million in ATHM's case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Autohome Inc (NYSE:ATHM) is even less popular than AVY. Hedge funds dodged a bullet by taking a bearish stance towards ATHM. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ATHM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ATHM investors were disappointed as the stock returned -2.9% 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 among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.