The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded LKQ Corporation (NASDAQ:LKQ) and determine whether the smart money was really smart about this stock.
LKQ Corporation (NASDAQ:LKQ) has seen a decrease in support from the world's most elite money managers lately. Our calculations also showed that LKQ isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
According to most investors, hedge funds are seen as slow, old investment vehicles of the past. While there are greater than 8000 funds in operation at present, We choose to focus on the upper echelon of this club, about 850 funds. These investment experts watch over bulk of the smart money's total capital, and by keeping track of their matchless stock picks, Insider Monkey has spotted numerous investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_30493" align="aligncenter" width="395"] Jeffrey Ubben of ValueAct Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a look at the latest hedge fund action regarding LKQ Corporation (NASDAQ:LKQ).
How have hedgies been trading LKQ Corporation (NASDAQ:LKQ)?
At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 43 hedge funds with a bullish position in LKQ a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, ValueAct Capital held the most valuable stake in LKQ Corporation (NASDAQ:LKQ), which was worth $441.9 million at the end of the third quarter. On the second spot was International Value Advisers which amassed $144.9 million worth of shares. Southpoint Capital Advisors, Eminence Capital, and Atalan Capital 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 Clearfield Capital allocated the biggest weight to LKQ Corporation (NASDAQ:LKQ), around 13.04% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, setting aside 9.16 percent of its 13F equity portfolio to LKQ.
Because LKQ Corporation (NASDAQ:LKQ) has faced declining sentiment from the smart money, logic holds that there was a specific group of hedgies that elected to cut their entire stakes heading into Q4. At the top of the heap, Greg Poole's Echo Street Capital Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, valued at close to $33.2 million in stock, and Baker Burleson and Stormy Scott's Banbury Partners was right behind this move, as the fund cut about $16.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 11 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to LKQ Corporation (NASDAQ:LKQ). We will take a look at Formula One Group (NASDAQ:FWONK), Encompass Health Corporation (NYSE:EHC), The Interpublic Group of Companies Inc (NYSE:IPG), and Charles River Laboratories International Inc. (NYSE:CRL). This group of stocks' market valuations are closest to LKQ's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FWONK,37,1125200,0 EHC,33,556709,4 IPG,21,594460,-5 CRL,36,862557,4 Average,31.75,784732,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $1132 million in LKQ's case. Formula One Group (NASDAQ:FWONK) is the most popular stock in this table. On the other hand The Interpublic Group of Companies Inc (NYSE:IPG) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks LKQ Corporation (NASDAQ:LKQ) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on LKQ as the stock returned 27.7% in Q2 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.
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Disclosure: None. This article was originally published at Insider Monkey.