Hedge Fund Sentiment Is Stagnant On Ituran Location and Control Ltd. (ITRN)

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 Ituran Location and Control Ltd. (NASDAQ:ITRN) and determine whether the smart money was really smart about this stock.

Ituran Location and Control Ltd. (NASDAQ:ITRN) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare ITRN to other stocks including Gamco Investors Inc. (NYSE:GBL), Sprague Resources LP (NYSE:SRLP), and TCG BDC, Inc. (NASDAQ:CGBD) to get a better sense of its popularity.

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.

Jim Simons of Renaissance Technologies

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. Keeping this in mind let’s take a look at the new hedge fund action surrounding Ituran Location and Control Ltd. (NASDAQ:ITRN).

How have hedgies been trading Ituran Location and Control Ltd. (NASDAQ:ITRN)?

Heading into the second quarter of 2020, a total of 10 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 ITRN over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Gobi Capital was the largest shareholder of Ituran Location and Control Ltd. (NASDAQ:ITRN), with a stake worth $20.9 million reported as of the end of September. Trailing Gobi Capital was Renaissance Technologies, which amassed a stake valued at $19.7 million. D E Shaw, Royce & Associates, and Two Sigma Advisors 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 Gobi Capital allocated the biggest weight to Ituran Location and Control Ltd. (NASDAQ:ITRN), around 2.89% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to ITRN.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PDT Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).

Let’s go over hedge fund activity in other stocks similar to Ituran Location and Control Ltd. (NASDAQ:ITRN). These stocks are Gamco Investors Inc. (NYSE:GBL), Sprague Resources LP (NYSE:SRLP), TCG BDC, Inc. (NASDAQ:CGBD), and Global Partners LP (NYSE:GLP). All of these stocks’ market caps resemble ITRN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $45 million in ITRN’s case. Gamco Investors Inc. (NYSE:GBL) is the most popular stock in this table. On the other hand Global Partners LP (NYSE:GLP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Ituran Location and Control Ltd. (NASDAQ:ITRN) 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 gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately ITRN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ITRN were disappointed as the stock returned 12.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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