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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ituran Location and Control Ltd. (NASDAQ:ITRN).
Is ITRN a good stock to buy now? Ituran Location and Control Ltd. (NASDAQ:ITRN) shareholders have witnessed a decrease in support from the world's most elite money managers of late. Ituran Location and Control Ltd. (NASDAQ:ITRN) was in 7 hedge funds' portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that ITRN isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to view the new hedge fund action regarding Ituran Location and Control Ltd. (NASDAQ:ITRN).
How are hedge funds trading Ituran Location and Control Ltd. (NASDAQ:ITRN)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ITRN over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Ituran Location and Control Ltd. (NASDAQ:ITRN) was held by Gobi Capital, which reported holding $20.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $19.5 million position. Other investors bullish on the company included D E Shaw, Royce & Associates, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Gobi Capital allocated the biggest weight to Ituran Location and Control Ltd. (NASDAQ:ITRN), around 1.81% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to ITRN.
Due to the fact that Ituran Location and Control Ltd. (NASDAQ:ITRN) has witnessed a decline in interest from the smart money, logic holds that there were a few funds that elected to cut their full holdings heading into Q4. Intriguingly, Ken Griffin's Citadel Investment Group dumped the biggest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $0.3 million in stock. Greg Eisner's fund, Engineers Gate Manager, also said goodbye to its stock, about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Ituran Location and Control Ltd. (NASDAQ:ITRN). These stocks are City Office REIT Inc (NYSE:CIO), Blink Charging Co. (NASDAQ:BLNK), Seneca Foods Corp (NASDAQ:SENEA), Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), China Distance Education Hldgs Ltd (NYSE:DL), AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), and Genesco Inc. (NYSE:GCO). This group of stocks' market caps are closest to ITRN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIO,15,29144,2 BLNK,5,12486,3 SENEA,11,32029,2 AOSL,11,37899,1 DL,3,6280,0 AMAG,11,139323,-3 GCO,13,21117,0 Average,9.9,39754,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.9 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $43 million in ITRN's case. City Office REIT Inc (NYSE:CIO) is the most popular stock in this table. On the other hand China Distance Education Hldgs Ltd (NYSE:DL) is the least popular one with only 3 bullish hedge fund positions. Ituran Location and Control Ltd. (NASDAQ:ITRN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITRN is 35.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on ITRN as the stock returned 26.1% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.