It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 The Goodyear Tire & Rubber Company (NASDAQ:GT).
Is The Goodyear Tire & Rubber Company (NASDAQ:GT) a good investment right now? Hedge funds are selling. The number of long hedge fund positions were trimmed by 3 recently. Our calculations also showed that GT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GT was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 30 hedge funds in our database with GT holdings at the end of the previous quarter. 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 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_26575" align="aligncenter" width="471"] Louis Bacon Moore of Moore 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 look at the key hedge fund action regarding The Goodyear Tire & Rubber Company (NASDAQ:GT).
What does smart money think about The Goodyear Tire & Rubber Company (NASDAQ:GT)?
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GT over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, D E Shaw was the largest shareholder of The Goodyear Tire & Rubber Company (NASDAQ:GT), with a stake worth $140.1 million reported as of the end of September. Trailing D E Shaw was Lyrical Asset Management, which amassed a stake valued at $127.4 million. Citadel Investment Group, Arrowstreet Capital, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to The Goodyear Tire & Rubber Company (NASDAQ:GT), around 1.92% of its portfolio. Masters Capital Management is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to GT.
Since The Goodyear Tire & Rubber Company (NASDAQ:GT) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of funds who sold off their entire stakes in the third quarter. It's worth mentioning that Lee Ainslie's Maverick Capital cut the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $12.1 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund sold off about $5.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to The Goodyear Tire & Rubber Company (NASDAQ:GT). We will take a look at Silgan Holdings Inc. (NASDAQ:SLGN), On ASGN Incorporated (NYSE:ASGN), Corporate Office Properties Trust (NYSE:OFC), and American National Insurance Company (NASDAQ:ANAT). This group of stocks' market valuations match GT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SLGN,16,220385,-2 ASGN,14,177280,-7 OFC,15,189405,-1 ANAT,16,60381,1 Average,15.25,161863,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $162 million. That figure was $632 million in GT's case. Silgan Holdings Inc. (NASDAQ:SLGN) is the most popular stock in this table. On the other hand On ASGN Incorporated (NYSE:ASGN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks The Goodyear Tire & Rubber Company (NASDAQ:GT) 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 GT as the stock returned 12.1% 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.