We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Hertz Global Holdings, Inc. (NYSE:HTZ). Hertz is a multi-brand premium car rental and leasing company that also offers rentals on luxury car brands. SPDR S&P Transportation ETF (NYSE:XTN) is the only ETF with a top 15 allocation to Hertz at the moment. Below, we will compare HTZ against similarly valued stocks such as Norbord Inc. (NYSE:OSB), Mack-Cali Realty Corporation (NYSE:CLI), International Speedway Corporation (NASDAQ:ISCA), and iRhythm Technologies, Inc. (NASDAQ:IRTC).
Hertz Global Holdings, Inc. (NYSE:HTZ) was in 25 hedge funds' portfolios at the end of September. HTZ investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 30 hedge funds in our database with HTZ positions at the end of the previous quarter. Our calculations also showed that HTZ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_25910" align="aligncenter" width="467"] Carl Icahn of Icahn Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the fresh hedge fund action regarding Hertz Global Holdings, Inc. (NYSE:HTZ).
How have hedgies been trading Hertz Global Holdings, Inc. (NYSE:HTZ)?
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in HTZ over the last 17 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Carl Icahn's Icahn Capital has the largest position in Hertz Global Holdings, Inc. (NYSE:HTZ), worth close to $579.8 million, comprising 2.3% of its total 13F portfolio. The second most bullish fund manager is Paul Reeder of PAR Capital Management, with a $110.4 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism encompass Mario Gabelli's GAMCO Investors, Renaissance Technologies and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to Hertz Global Holdings, Inc. (NYSE:HTZ), around 3.91% of its portfolio. Cobalt Capital Management is also relatively very bullish on the stock, setting aside 2.47 percent of its 13F equity portfolio to HTZ.
Due to the fact that Hertz Global Holdings, Inc. (NYSE:HTZ) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of funds that elected to cut their entire stakes last quarter. Interestingly, Gabriel Plotkin's Melvin Capital Management said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $39.1 million in stock, and Mario Gabelli's GAMCO Investors was right behind this move, as the fund sold off about $10.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hertz Global Holdings, Inc. (NYSE:HTZ) but similarly valued. We will take a look at Norbord Inc. (NYSE:OSB), Mack-Cali Realty Corporation (NYSE:CLI), International Speedway Corporation (NASDAQ:ISCA), and iRhythm Technologies, Inc. (NASDAQ:IRTC). This group of stocks' market values resemble HTZ's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSB,6,15366,0 CLI,13,139793,0 ISCA,15,217768,1 IRTC,17,195889,1 Average,12.75,142204,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $1158 million in HTZ's case. iRhythm Technologies, Inc. (NASDAQ:IRTC) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Hertz Global Holdings, Inc. (NYSE:HTZ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on HTZ as the stock returned 12% during the first two months of Q4 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.