Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards American Axle & Manufacturing Holdings, Inc. (NYSE:AXL).
Is American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) a buy here? The smart money is becoming hopeful. The number of long hedge fund positions went up by 1 recently. Our calculations also showed that AXL isn't among the 30 most popular stocks among hedge funds (see 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 former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a look at the latest hedge fund action surrounding American Axle & Manufacturing Holdings, Inc. (NYSE:AXL).
What have hedge funds been doing with American Axle & Manufacturing Holdings, Inc. (NYSE:AXL)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2019. By comparison, 27 hedge funds held shares or bullish call options in AXL a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) was held by Citadel Investment Group, which reported holding $29.1 million worth of stock at the end of March. It was followed by Redwood Capital Management with a $14.2 million position. Other investors bullish on the company included Millennium Management, Anchor Bolt Capital, and Hudson Bay Capital Management.
As aggregate interest increased, key hedge funds have jumped into American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) headfirst. Aristeia Capital, managed by Robert Henry Lynch, created the biggest position in American Axle & Manufacturing Holdings, Inc. (NYSE:AXL). Aristeia Capital had $3.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $2.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Chanos's Kynikos, Nick Niell's Arrowgrass Capital Partners, and Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks similar to American Axle & Manufacturing Holdings, Inc. (NYSE:AXL). We will take a look at AeroVironment, Inc. (NASDAQ:AVAV), Masonite International Corporation (NYSE:DOOR), Hawaiian Holdings, Inc. (NASDAQ:HA), and Canadian Solar Inc. (NASDAQ:CSIQ). This group of stocks' market caps are closest to AXL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVAV,12,38843,-1 DOOR,19,281379,-2 HA,11,93991,-3 CSIQ,13,142467,2 Average,13.75,139170,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $90 million in AXL's case. Masonite International Corporation (NYSE:DOOR) is the most popular stock in this table. On the other hand Hawaiian Holdings, Inc. (NASDAQ:HA) is the least popular one with only 11 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 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 AXL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AXL were disappointed as the stock returned -35.6% 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.