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Here’s What Hedge Fund Think About TrueCar Inc (TRUE)

Nina Todic

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards TrueCar Inc (NASDAQ:TRUE) and see how it was affected.

Is TrueCar Inc (NASDAQ:TRUE) a healthy stock for your portfolio? The smart money is becoming more confident. The number of long hedge fund bets rose by 2 lately. Our calculations also showed that TRUE isn't among the 30 most popular stocks among hedge funds.

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.

John Overdeck of Two Sigma

Let's review the fresh hedge fund action surrounding TrueCar Inc (NASDAQ:TRUE).

Hedge fund activity in TrueCar Inc (NASDAQ:TRUE)

Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the fourth quarter of 2018. On the other hand, there were a total of 20 hedge funds with a bullish position in TRUE a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

No of Hedge Funds with TRUE Positions

Among these funds, 0 held the most valuable stake in TrueCar Inc (NASDAQ:TRUE), which was worth $65.2 million at the end of the first quarter. On the second spot was Rima Senvest Management which amassed $55.1 million worth of shares. Moreover, 683 Capital Partners, D E Shaw, and Two Sigma Advisors were also bullish on TrueCar Inc (NASDAQ:TRUE), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in TrueCar Inc (NASDAQ:TRUE). Arrowstreet Capital had $2.4 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs's Wexford Capital also made a $2.3 million investment in the stock during the quarter. The following funds were also among the new TRUE investors: Jim Simons's Renaissance Technologies, Matthew Hulsizer's PEAK6 Capital Management, and Minhua Zhang's Weld Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as TrueCar Inc (NASDAQ:TRUE) but similarly valued. We will take a look at Revance Therapeutics Inc (NASDAQ:RVNC), Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK), US Concrete Inc (NASDAQ:USCR), and EMC Insurance Group Inc. (NASDAQ:EMCI). This group of stocks' market valuations resemble TRUE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RVNC,12,24975,3 NFBK,5,32141,1 USCR,17,76849,-1 EMCI,6,27213,1 Average,10,40295,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $166 million in TRUE's case. US Concrete Inc (NASDAQ:USCR) is the most popular stock in this table. On the other hand Northfield Bancorp, Inc. (Staten Island, NY) (NASDAQ:NFBK) is the least popular one with only 5 bullish hedge fund positions. TrueCar Inc (NASDAQ:TRUE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately TRUE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TRUE were disappointed as the stock returned -18.5% during the same period 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 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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