The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards TrueCar Inc (NASDAQ:TRUE), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in TrueCar Inc (NASDAQ:TRUE) shares was flat at the end of last quarter. This is usually a negative indicator but not in this case. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Yintech Investment Holdings Limited (NASDAQ:YIN), Citizens & Northern Corporation (NASDAQ:CZNC), and TCR2 Therapeutics Inc. (NASDAQ:TCRR) to gather more data points. Our calculations also showed that TRUE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s go over the latest hedge fund action encompassing TrueCar Inc (NASDAQ:TRUE).
What does smart money think about TrueCar Inc (NASDAQ:TRUE)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in TRUE a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in TrueCar Inc (NASDAQ:TRUE) was held by PAR Capital Management, which reported holding $35 million worth of stock at the end of September. It was followed by D E Shaw with a $9.2 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and Maverick Capital. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to TrueCar Inc (NASDAQ:TRUE), around 0.61% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to TRUE.
Due to the fact that TrueCar Inc (NASDAQ:TRUE) has faced declining sentiment from the smart money, logic holds that there were a few money managers that elected to cut their positions entirely in the third quarter. Intriguingly, Ari Zweiman’s 683 Capital Partners dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $6 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $0.8 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to TrueCar Inc (NASDAQ:TRUE). These stocks are Yintech Investment Holdings Limited (NASDAQ:YIN), Citizens & Northern Corporation (NASDAQ:CZNC), TCR2 Therapeutics Inc. (NASDAQ:TCRR), and Park Electrochemical Corp. (NYSE:PKE). This group of stocks’ market valuations resemble TRUE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YIN | 1 | 362 | 0 |
| CZNC | 2 | 6741 | 0 |
| TCRR | 2 | 31761 | -2 |
| PKE | 12 | 82109 | 3 |
| Average | 4.25 | 30243 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $67 million in TRUE’s case. Park Electrochemical Corp. (NYSE:PKE) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks TrueCar Inc (NASDAQ:TRUE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on TRUE as the stock returned 54.4% during the first two months of Q4 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.
