There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Autoliv Inc. (NYSE:ALV).
Autoliv Inc. (NYSE:ALV) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 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 Zynga Inc (NASDAQ:ZNGA), AECOM (NYSE:ACM), and Monolithic Power Systems, Inc. (NASDAQ:MPWR) to gather more data points. Our calculations also showed that ALV 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.
Why do we pay any attention at all to hedge fund sentiment? 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 view the recent hedge fund action encompassing Autoliv Inc. (NYSE:ALV).
What have hedge funds been doing with Autoliv Inc. (NYSE:ALV)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in ALV a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Christer Gardell and Lars Forberg's Cevian Capital has the biggest position in Autoliv Inc. (NYSE:ALV), worth close to $403.6 million, corresponding to 74.4% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $17.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Renaissance Technologies, Kenneth Squire's 13D Management and Ed Beddow and William Tichy's Beddow Capital Management.
Due to the fact that Autoliv Inc. (NYSE:ALV) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedgies that slashed their entire stakes in the second quarter. It's worth mentioning that Brandon Haley's Holocene Advisors dumped the biggest stake of all the hedgies watched by Insider Monkey, worth close to $1.3 million in stock. Hoon Kim's fund, Quantinno Capital, also sold off its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Autoliv Inc. (NYSE:ALV) but similarly valued. These stocks are Zynga Inc (NASDAQ:ZNGA), AECOM (NYSE:ACM), Monolithic Power Systems, Inc. (NASDAQ:MPWR), and Antero Midstream Corp (NYSE:AM). This group of stocks' market caps are closest to ALV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNGA,48,1138396,13 ACM,22,599419,1 MPWR,23,196589,3 AM,15,234499,-4 Average,27,542226,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $542 million. That figure was $452 million in ALV's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Antero Midstream Corp (NYSE:AM) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Autoliv Inc. (NYSE:ALV) is even less popular than AM. Hedge funds clearly dropped the ball on ALV as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on ALV as the stock returned 12.9% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.