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Hedge Funds Are Warming Up To Ford Motor Company (F) At The Wrong Time

Asma UL Husna

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Ford Motor Company (NYSE:F) the right pick for your portfolio? The best stock pickers are getting more bullish. The number of long hedge fund positions rose by 6 lately. Our calculations also showed that F isn't among the 30 most popular stocks among hedge funds (see the video below). F was in 39 hedge funds' portfolios at the end of the second quarter of 2019. There were 33 hedge funds in our database with F positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

F_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let's analyze the latest hedge fund action encompassing Ford Motor Company (NYSE:F).

What does smart money think about Ford Motor Company (NYSE:F)?

Heading into the third quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards F over the last 16 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

[caption id="attachment_25717" align="aligncenter" width="440"] Steve Cohen[/caption]

Steve Cohen

The largest stake in Ford Motor Company (NYSE:F) was held by Pzena Investment Management, which reported holding $338.3 million worth of stock at the end of March. It was followed by Greenhaven Associates with a $331.9 million position. Other investors bullish on the company included Citadel Investment Group, D E Shaw, and Renaissance Technologies.

As aggregate interest increased, key hedge funds have jumped into Ford Motor Company (NYSE:F) headfirst. Point72 Asset Management, managed by Steve Cohen, established the biggest position in Ford Motor Company (NYSE:F). Point72 Asset Management had $99.9 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $17.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell's Scopus Asset Management, Mike Masters's Masters Capital Management, and Israel Englander's Millennium Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Ford Motor Company (NYSE:F) but similarly valued. These stocks are Ferrari N.V. (NYSE:RACE), Koninklijke Philips NV (NYSE:PHG), Tesla Inc. (NASDAQ:TSLA), and The Travelers Companies, Inc. (NYSE:TRV). This group of stocks' market values resemble F's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RACE,30,1266186,2 PHG,8,200510,-3 TSLA,37,711450,5 TRV,26,1391312,-3 Average,25.25,892365,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $892 million. That figure was $1595 million in F's case. Tesla Inc. (NASDAQ:TSLA) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Ford Motor Company (NYSE:F) 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 F wasn't nearly as popular as these 20 stocks and hedge funds that were betting on F were disappointed as the stock returned -9.1% 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.

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