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Do Hedge Funds Love Ford Motor Company (F)?

Asma UL Husna

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Ford Motor Company (NYSE:F) and determine whether hedge funds skillfully traded this stock.

Ford Motor Company (NYSE:F) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Ford Motor Company (NYSE:F) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistics is 42. There were 33 hedge funds in our database with F holdings at the end of March. Our calculations also showed that F isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stan Druckenmiller DUQUESNE CAPITAL
Stan Druckenmiller DUQUESNE CAPITAL

Stanley Druckenmiller of Duquesne Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to take a gander at the fresh hedge fund action regarding Ford Motor Company (NYSE:F).

What have hedge funds been doing with Ford Motor Company (NYSE:F)?

At the end of June, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the first quarter of 2020. On the other hand, there were a total of 39 hedge funds with a bullish position in F a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the most valuable position in Ford Motor Company (NYSE:F), worth close to $296.4 million, amounting to 1.9% of its total 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $209.1 million position; 0.4% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions include Edgar Wachenheim's Greenhaven Associates, and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to Ford Motor Company (NYSE:F), around 10.97% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, earmarking 3.54 percent of its 13F equity portfolio to F.

Due to the fact that Ford Motor Company (NYSE:F) has experienced declining sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few fund managers who sold off their positions entirely heading into Q3. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors dropped the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $6.1 million in stock, and Jonathan Soros's JS Capital was right behind this move, as the fund dumped about $4.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ford Motor Company (NYSE:F) but similarly valued. These stocks are Prudential Financial Inc (NYSE:PRU), Consolidated Edison, Inc. (NYSE:ED), Valero Energy Corporation (NYSE:VLO), Xilinx, Inc. (NASDAQ:XLNX), TransDigm Group Incorporated (NYSE:TDG), McCormick & Company, Incorporated (NYSE:MKC), and Verisign, Inc. (NASDAQ:VRSN). 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 PRU,26,437049,-2 ED,31,714139,6 VLO,39,157343,-6 XLNX,47,1054542,9 TDG,62,6065530,4 MKC,32,251773,1 VRSN,47,6245654,6 Average,40.6,2132290,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.6 hedge funds with bullish positions and the average amount invested in these stocks was $2132 million. That figure was $792 million in F's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Prudential Financial Inc (NYSE:PRU) is the least popular one with only 26 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 overall hedge fund sentiment score for F is 29. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on F as the stock returned 17.1% since the end of June (through September 14th) and outperformed the market by an even larger margin.

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

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