Did Hedge Funds Make The Right Call On Asbury Automotive Group, Inc. (ABG) ?

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 thoughtAsbury Automotive Group, Inc. (NYSE:ABG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Asbury Automotive Group, Inc. (NYSE:ABG) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. ABG was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with ABG positions at the end of the previous quarter. Our calculations also showed that ABG 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 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 S&P 500 ETFs by 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 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.

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to review the fresh hedge fund action regarding Asbury Automotive Group, Inc. (NYSE:ABG).

How are hedge funds trading Asbury Automotive Group, Inc. (NYSE:ABG)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ABG over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Abrams Capital Management, managed by David Abrams, holds the largest position in Asbury Automotive Group, Inc. (NYSE:ABG). Abrams Capital Management has a $117 million position in the stock, comprising 4.6% of its 13F portfolio. Sitting at the No. 2 spot is Ricky Sandler of Eminence Capital, with a $45.7 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Lauren Taylor Wolfe’s Impactive Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to Asbury Automotive Group, Inc. (NYSE:ABG), around 14.3% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, earmarking 4.6 percent of its 13F equity portfolio to ABG.

Due to the fact that Asbury Automotive Group, Inc. (NYSE:ABG) has experienced declining sentiment from hedge fund managers, it’s safe to say that there was a specific group of fund managers who were dropping their entire stakes heading into Q4. At the top of the heap, Brandon Haley’s Holocene Advisors said goodbye to the largest stake of all the hedgies followed by Insider Monkey, worth an estimated $2 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $1.4 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Asbury Automotive Group, Inc. (NYSE:ABG) but similarly valued. These stocks are Heron Therapeutics Inc (NASDAQ:HRTX), Marcus & Millichap Inc (NYSE:MMI), Viper Energy Partners LP (NASDAQ:VNOM), and Pretium Resources Inc (NYSE:PVG). This group of stocks’ market valuations are closest to ABG’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $249 million in ABG’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand Marcus & Millichap Inc (NYSE:MMI) is the least popular one with only 9 bullish hedge fund positions. Asbury Automotive Group, Inc. (NYSE:ABG) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on ABG as the stock returned 96.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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