Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Alcoa Corporation (NYSE:AA) has experienced an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most shareholders, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds trading today, Our researchers choose to focus on the upper echelon of this club, around 750 funds. Most estimates calculate that this group of people command bulk of the smart money’s total capital, and by following their matchless equity investments, Insider Monkey has discovered various investment strategies that have historically outpaced the market. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points annually since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Didric Cederholm of Lion Point Capital
Let’s take a peek at the new hedge fund action encompassing Alcoa Corporation (NYSE:AA).
Hedge fund activity in Alcoa Corporation (NYSE:AA)
Heading into the second quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in AA over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, William B. Gray’s Orbis Investment Management has the biggest position in Alcoa Corporation (NYSE:AA), worth close to $134.3 million, comprising 0.9% of its total 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $72.6 million position; 0.2% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism include Jim Simons’s Renaissance Technologies, Cliff Asness’s AQR Capital Management and Didric Cederholm’s Lion Point.
Consequently, key hedge funds have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, established the most outsized position in Alcoa Corporation (NYSE:AA). Renaissance Technologies had $67.6 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also initiated a $28.2 million position during the quarter. The following funds were also among the new AA investors: Noam Gottesman’s GLG Partners, Lee Ainslie’s Maverick Capital, and Mike Vranos’s Ellington.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Alcoa Corporation (NYSE:AA) but similarly valued. We will take a look at W.R. Grace & Co. (NYSE:GRA), Flex Ltd. (NASDAQ:FLEX), Companhia Energética de Minas Gerais (NYSE:CIG), and Skechers USA Inc (NYSE:SKX). This group of stocks’ market valuations resemble AA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRA | 36 | 1771591 | -1 |
| FLEX | 27 | 884594 | 3 |
| CIG | 9 | 27706 | 2 |
| SKX | 24 | 319715 | -1 |
| Average | 24 | 750902 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $527 million in AA’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Companhia Energética de Minas Gerais (NYSE:CIG) is the least popular one with only 9 bullish hedge fund positions. Alcoa Corporation (NYSE:AA) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately AA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AA were disappointed as the stock returned -23.2% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
