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 PACCAR Inc (NASDAQ:PCAR) and determine whether hedge funds skillfully traded this stock.
Is PACCAR Inc (NASDAQ:PCAR) an outstanding investment right now? The best stock pickers were in a bearish mood. The number of long hedge fund positions went down by 8 lately. PACCAR Inc (NASDAQ:PCAR) was in 30 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that PCAR 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.
Louis Bacon of Moore Global Investments
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 go over the recent hedge fund action surrounding PACCAR Inc (NASDAQ:PCAR).
What have hedge funds been doing with PACCAR Inc (NASDAQ:PCAR)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the first quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in PCAR a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in PACCAR Inc (NASDAQ:PCAR) was held by Citadel Investment Group, which reported holding $57.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $33.4 million position. Other investors bullish on the company included Renaissance Technologies, Marshall Wace LLP, and Adage Capital Management. In terms of the portfolio weights assigned to each position Cinctive Capital Management allocated the biggest weight to PACCAR Inc (NASDAQ:PCAR), around 0.55% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, setting aside 0.48 percent of its 13F equity portfolio to PCAR.
Seeing as PACCAR Inc (NASDAQ:PCAR) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds who sold off their entire stakes heading into Q3. Interestingly, Anand Parekh's Alyeska Investment Group cut the largest position of the "upper crust" of funds watched by Insider Monkey, valued at close to $38.9 million in stock, and Robert Bishop's Impala Asset Management was right behind this move, as the fund said goodbye to about $32.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 8 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to PACCAR Inc (NASDAQ:PCAR). We will take a look at AFLAC Incorporated (NYSE:AFL), Suncor Energy Inc. (NYSE:SU), Sirius XM Holdings Inc (NASDAQ:SIRI), Cummins Inc. (NYSE:CMI), Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), and Fresenius Medical Care AG & Co. KGaA. (NYSE:FMS). All of these stocks' market caps are similar to PCAR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AFL,34,588093,2 SU,29,845050,-1 SIRI,42,1136784,6 CMI,38,358670,4 SLB,53,932470,4 JCI,28,1099174,-9 FMS,6,11727,-4 Average,32.9,710281,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.9 hedge funds with bullish positions and the average amount invested in these stocks was $710 million. That figure was $244 million in PCAR's case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA.(NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. PACCAR Inc (NASDAQ:PCAR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCAR is 46.2. 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 PCAR as the stock returned 15.8% 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.