Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) investors should be aware of a decrease in activity from the world's largest hedge funds of late. AXL was in 24 hedge funds' portfolios at the end of December. There were 25 hedge funds in our database with AXL holdings at the end of the previous quarter. Our calculations also showed that AXL 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 32 percentage points since May 2014 through March 12, 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.
[caption id="attachment_30576" align="aligncenter" width="501"] Glenn Russell Dubin of Highbridge Capital[/caption]
Let's take a peek at the latest hedge fund action surrounding American Axle & Manufacturing Holdings, Inc. (NYSE:AXL).
Hedge fund activity in American Axle & Manufacturing Holdings, Inc. (NYSE:AXL)
Heading into the first quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in AXL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Anchor Bolt Capital, managed by Robert Polak, holds the largest position in American Axle & Manufacturing Holdings, Inc. (NYSE:AXL). Anchor Bolt Capital has a $35.9 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Redwood Capital Management, led by Jonathan Kolatch, holding a $12.9 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain Israel Englander's Millennium Management, Andy Redleaf's Whitebox Advisors and Chuck Royce's Royce & Associates.
Because American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) has faced bearish sentiment from the smart money, logic holds that there is a sect of funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Phill Gross and Robert Atchinson's Adage Capital Management dropped the largest position of all the hedgies tracked by Insider Monkey, worth an estimated $23.4 million in stock. George McCabe's fund, Portolan Capital Management, also dropped its stock, about $9.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to American Axle & Manufacturing Holdings, Inc. (NYSE:AXL). These stocks are WAVE Life Sciences Ltd. (NASDAQ:WVE), Kearny Financial Corp. (NASDAQ:KRNY), Fitbit Inc (NYSE:FIT), and Hudbay Minerals Inc. (NYSE:HBM). This group of stocks' market caps match AXL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WVE,21,492122,-1 KRNY,15,173642,-2 FIT,15,83131,-2 HBM,13,176362,0 Average,16,231314,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $124 million in AXL's case. WAVE Life Sciences Ltd. (NASDAQ:WVE) is the most popular stock in this table. On the other hand Hudbay Minerals Inc. (NYSE:HBM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on AXL as the stock returned 39.5% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.