As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Axalta Coating Systems Ltd (NYSE:AXTA).
Axalta Coating Systems Ltd (NYSE:AXTA) has seen a decrease in activity from the world's largest hedge funds recently. AXTA was in 41 hedge funds' portfolios at the end of June. There were 43 hedge funds in our database with AXTA holdings at the end of the previous quarter. Our calculations also showed that AXTA isn't among the 30 most popular stocks among hedge funds (view 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. We're going to analyze the fresh hedge fund action encompassing Axalta Coating Systems Ltd (NYSE:AXTA).
Hedge fund activity in Axalta Coating Systems Ltd (NYSE:AXTA)
Heading into the third quarter of 2019, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2019. By comparison, 40 hedge funds held shares or bullish call options in AXTA a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Axalta Coating Systems Ltd (NYSE:AXTA) was held by Berkshire Hathaway, which reported holding $722.3 million worth of stock at the end of March. It was followed by Diamond Hill Capital with a $248.9 million position. Other investors bullish on the company included JANA Partners, Renaissance Technologies, and FPR Partners.
Since Axalta Coating Systems Ltd (NYSE:AXTA) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who were dropping their entire stakes last quarter. It's worth mentioning that Vinit Bodas's Deccan Value Advisors dropped the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $182.6 million in call options, and Jeffrey Gates's Gates Capital Management was right behind this move, as the fund dropped about $50.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Axalta Coating Systems Ltd (NYSE:AXTA). We will take a look at Insulet Corporation (NASDAQ:PODD), Berry Global Group Inc (NYSE:BERY), Douglas Emmett, Inc. (NYSE:DEI), and AerCap Holdings N.V. (NYSE:AER). This group of stocks' market values resemble AXTA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PODD,24,390580,4 BERY,40,2294462,0 DEI,19,627313,5 AER,27,805285,4 Average,27.5,1029410,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1029 million. That figure was $2287 million in AXTA's case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Axalta Coating Systems Ltd (NYSE:AXTA) 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 AXTA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AXTA were disappointed as the stock returned 1.3% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.