Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Alcoa Corporation (NYSE:AA).
Alcoa Corporation (NYSE:AA) investors should be aware of a decrease in support from the world’s most elite money managers lately. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds.
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’ 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.
We’re going to analyze the new hedge fund action encompassing Alcoa Corporation (NYSE:AA).
What does the smart money think about Alcoa Corporation (NYSE:AA)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the second quarter of 2018. By comparison, 34 hedge funds held shares or bullish call options in AA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Alcoa Corporation (NYSE:AA) was held by Orbis Investment Management, which reported holding $113.1 million worth of stock at the end of September. It was followed by Lion Point with a $38 million position. Other investors bullish on the company included First Pacific Advisors LLC, D E Shaw, and Adage Capital Management.
Seeing as Alcoa Corporation (NYSE:AA) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedge funds that slashed their entire stakes in the third quarter. It’s worth mentioning that Josh Donfeld and David Rogers’s Castle Hook Partners sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $62.4 million in call options, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $16.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 8 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at Aurora Cannabis Inc. (NYSE:ACB), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Mellanox Technologies, Ltd. (NASDAQ:MLNX), and The Hanover Insurance Group, Inc. (NYSE:THG). 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 |
|---|---|---|---|
| ACB | 9 | 42637 | 9 |
| TKC | 9 | 15197 | 1 |
| MLNX | 45 | 1295298 | 13 |
| THG | 20 | 368274 | 2 |
| Average | 20.75 | 430352 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $430 million. That figure was $403 million in AA’s case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A few hedge funds that were betting on Alcoa were disappointed as the stock returned 5.9% 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 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
