We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
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 Asbury Automotive Group, Inc. (NYSE:ABG).
Asbury Automotive Group, Inc. (NYSE:ABG) has experienced an increase in support from the world’s most elite money managers of late. Our calculations also showed that ABG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
David Abrams of Abrams Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the fresh hedge fund action surrounding Asbury Automotive Group, Inc. (NYSE:ABG).
What have hedge funds been doing with Asbury Automotive Group, Inc. (NYSE:ABG)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the third quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in ABG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Abrams Capital Management held the most valuable stake in Asbury Automotive Group, Inc. (NYSE:ABG), which was worth $212.7 million at the end of the third quarter. On the second spot was Impactive Capital which amassed $37.6 million worth of shares. GLG Partners, Arrowstreet Capital, and Eminence 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 Impactive Capital allocated the biggest weight to Asbury Automotive Group, Inc. (NYSE:ABG), around 20.93% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, setting aside 6.61 percent of its 13F equity portfolio to ABG.
Now, specific money managers have been driving this bullishness. Impactive Capital, managed by Lauren Taylor Wolfe, initiated the largest position in Asbury Automotive Group, Inc. (NYSE:ABG). Impactive Capital had $37.6 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $1.4 million position during the quarter. The other funds with brand new ABG positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Dmitry Balyasny’s Balyasny Asset Management, and Bruce Kovner’s Caxton Associates LP.
Let’s go over hedge fund activity in other stocks similar to Asbury Automotive Group, Inc. (NYSE:ABG). These stocks are Canada Goose Holdings Inc. (NYSE:GOOS), Arcosa, Inc. (NYSE:ACA), Gray Television, Inc. (NYSE:GTN), and Eidos Therapeutics, Inc. (NASDAQ:EIDX). This group of stocks’ market valuations resemble ABG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOOS | 20 | 378578 | 5 |
| ACA | 20 | 247153 | -8 |
| GTN | 24 | 252616 | 0 |
| EIDX | 20 | 312421 | 5 |
| Average | 21 | 297692 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $298 million. That figure was $363 million in ABG’s case. Gray Television, Inc. (NYSE:GTN) is the most popular stock in this table. On the other hand Canada Goose Holdings Inc. (NYSE:GOOS) is the least popular one with only 20 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ABG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ABG were disappointed as the stock returned -57.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
