Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Toyota Motor Corporation (NYSE:TM).
Hedge fund interest in Toyota Motor Corporation (NYSE:TM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare TM to other stocks including PepsiCo, Inc. (NYSE:PEP), The Boeing Company (NYSE:BA), and Citigroup Inc. (NYSE:C) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are several methods investors employ to grade their stock investments. A pair of the less known methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace their index-focused peers by a significant amount (see the details here).
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s check out the recent hedge fund action encompassing Toyota Motor Corporation (NYSE:TM).
How have hedgies been trading Toyota Motor Corporation (NYSE:TM)?
Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TM over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Toyota Motor Corporation (NYSE:TM), which was worth $153.2 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $70.9 million worth of shares. Orbis Investment Management, Centiva Capital, and Citadel Investment Group 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 Centiva Capital allocated the biggest weight to Toyota Motor Corporation (NYSE:TM), around 0.27% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to TM.
Since Toyota Motor Corporation (NYSE:TM) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. It’s worth mentioning that Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital dumped the biggest position of all the hedgies followed by Insider Monkey, comprising close to $2.1 million in call options, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Toyota Motor Corporation (NYSE:TM). These stocks are PepsiCo, Inc. (NYSE:PEP), The Boeing Company (NYSE:BA), Citigroup Inc. (NYSE:C), and China Mobile Limited (NYSE:CHL). All of these stocks’ market caps are closest to TM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEP | 59 | 3107057 | -4 |
| BA | 82 | 2856387 | -1 |
| C | 98 | 11733711 | -3 |
| CHL | 12 | 386065 | 0 |
| Average | 62.75 | 4520805 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 62.75 hedge funds with bullish positions and the average amount invested in these stocks was $4521 million. That figure was $249 million in TM’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Toyota Motor Corporation (NYSE:TM) is even less popular than CHL. 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on TM, though not to the same extent, as the stock returned -12.6% during the same time period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
