Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Ford Motor Company (NYSE:F).
Hedge fund interest in Ford Motor Company (NYSE:F) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare F to other stocks including V.F. Corporation (NYSE:VFC), SYSCO Corporation (NYSE:SYY), and Barclays PLC (NYSE:BCS) to get a better sense of its popularity.
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.
Let's check out the new hedge fund action surrounding Ford Motor Company (NYSE:F).
How have hedgies been trading Ford Motor Company (NYSE:F)?
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 30 hedge funds held shares or bullish call options in F a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the number one position in Ford Motor Company (NYSE:F), worth close to $342.6 million, corresponding to 1.9% of its total 13F portfolio. Sitting at the No. 2 spot is Greenhaven Associates, led by Edgar Wachenheim, holding a $284.8 million position; the fund has 5.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Jim Simons's Renaissance Technologies and Ken Griffin's Citadel Investment Group.
Judging by the fact that Ford Motor Company (NYSE:F) has experienced declining sentiment from hedge fund managers, we can see that there was a specific group of hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Noam Gottesman's GLG Partners sold off the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth about $5.3 million in stock, and Ray Dalio's Bridgewater Associates was right behind this move, as the fund cut about $2.9 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Ford Motor Company (NYSE:F). We will take a look at V.F. Corporation (NYSE:VFC), SYSCO Corporation (NYSE:SYY), Barclays PLC (NYSE:BCS), and Autodesk, Inc. (NASDAQ:ADSK). This group of stocks' market values are closest to F's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VFC,29,1091453,2 SYY,36,2944902,2 BCS,10,160567,0 ADSK,57,3695998,-2 Average,33,1973230,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1973 million. That figure was $1106 million in F's case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 10 bullish hedge fund positions. Ford Motor Company (NYSE:F) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on F as the stock returned 12.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.