Did Hedge Funds Make The Right Call On Alcoa Corporation (AA) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtAlcoa Corporation (NYSE:AA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Alcoa Corporation (NYSE:AA) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that AA 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Didric Cederholm of Lion Point Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. With all of this in mind we’re going to take a glance at the latest hedge fund action surrounding Alcoa Corporation (NYSE:AA).

What does smart money think about Alcoa Corporation (NYSE:AA)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in AA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Orbis Investment Management was the largest shareholder of Alcoa Corporation (NYSE:AA), with a stake worth $63.7 million reported as of the end of September. Trailing Orbis Investment Management was Renaissance Technologies, which amassed a stake valued at $42.9 million. Two Sigma Advisors, Masters Capital Management, and Lion Point 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 Meru Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 6.87% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, designating 2.76 percent of its 13F equity portfolio to AA.

As one would reasonably expect, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most outsized position in Alcoa Corporation (NYSE:AA). Adage Capital Management had $9.2 million invested in the company at the end of the quarter. Guru Ramakrishnan’s Meru Capital also initiated a $3.2 million position during the quarter. The following funds were also among the new AA investors: Matthew Hulsizer’s PEAK6 Capital Management, Greg Eisner’s Engineers Gate Manager, and Mike Vranos’s Ellington.

Let’s also examine hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at Crocs, Inc. (NASDAQ:CROX), Great Western Bancorp Inc (NYSE:GWB), FBL Financial Group, Inc. (NYSE:FFG), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI). This group of stocks’ market caps resemble AA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $214 million in AA’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) 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 AA as the stock returned 82.5% 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.

Disclosure: None. This article was originally published at Insider Monkey.