Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Allison Transmission Holdings Inc (NYSE:ALSN) undervalued? The smart money is taking a bullish view. The number of long hedge fund bets moved up by 2 lately. Our calculations also showed that ALSN isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the key hedge fund action surrounding Allison Transmission Holdings Inc (NYSE:ALSN).
What have hedge funds been doing with Allison Transmission Holdings Inc (NYSE:ALSN)?
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ALSN over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, William Crowley, William Harker, and Stephen Blass’s Ashe Capital has the largest position in Allison Transmission Holdings Inc (NYSE:ALSN), worth close to $440.5 million, comprising 35.8% of its total 13F portfolio. The second largest stake is held by SQ Advisors, managed by Lou Simpson, which holds a $364.2 million position; 13.9% of its 13F portfolio is allocated to the company. Other peers with similar optimism include D. E. Shaw’s D E Shaw, Noam Gottesman’s GLG Partners and Jim Simons’s Renaissance Technologies.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, assembled the most outsized position in Allison Transmission Holdings Inc (NYSE:ALSN). Carlson Capital had $17.5 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $0.9 million investment in the stock during the quarter. The other funds with brand new ALSN positions are Brandon Haley’s Holocene Advisors, Ronald Hua’s Qtron Investments, and Minhua Zhang’s Weld Capital Management.
Let’s now review hedge fund activity in other stocks similar to Allison Transmission Holdings Inc (NYSE:ALSN). We will take a look at Masimo Corporation (NASDAQ:MASI), Nektar Therapeutics (NASDAQ:NKTR), American Campus Communities, Inc. (NYSE:ACC), and Teradyne, Inc. (NASDAQ:TER). All of these stocks’ market caps match ALSN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MASI | 33 | 461739 | 5 |
| NKTR | 20 | 235767 | -7 |
| ACC | 16 | 331686 | -1 |
| TER | 25 | 410970 | 0 |
| Average | 23.5 | 360041 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $1225 million in ALSN’s case. Masimo Corporation (NASDAQ:MASI) is the most popular stock in this table. On the other hand American Campus Communities, Inc. (NYSE:ACC) is the least popular one with only 16 bullish hedge fund positions. Allison Transmission Holdings Inc (NYSE:ALSN) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately ALSN wasn’t in this group. Hedge funds that bet on ALSN were disappointed as the stock returned 7.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
