Is Allison Transmission Holdings Inc (ALSN) Going to Burn These Hedge Funds?

Allison Transmission Holdings Inc (NYSE:ALSN) was in 6 hedge funds’ portfolio at the end of the first quarter of 2013. ALSN has experienced a decrease in activity from the world’s largest hedge funds of late. There were 7 hedge funds in our database with ALSN positions at the end of the previous quarter.

In the eyes of most investors, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds trading today, we hone in on the crème de la crème of this group, around 450 funds. It is widely believed that this group controls the lion’s share of all hedge funds’ total capital, and by keeping an eye on their best equity investments, we have spotted a number of investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Just as integral, positive insider trading activity is another way to parse down the world of equities. As the old adage goes: there are many reasons for a bullish insider to downsize shares of his or her company, but just one, very simple reason why they would initiate a purchase. Several empirical studies have demonstrated the market-beating potential of this strategy if you know what to do (learn more here).

With all of this in mind, we’re going to take a glance at the key action surrounding Allison Transmission Holdings Inc (NYSE:ALSN).

How are hedge funds trading Allison Transmission Holdings Inc (NYSE:ALSN)?

At the end of the first quarter, a total of 6 of the hedge funds we track were bullish in this stock, a change of -14% from the first quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings substantially.

When looking at the hedgies we track, Scout Capital Management, managed by James Crichton and Adam Weiss, holds the largest position in Allison Transmission Holdings Inc (NYSE:ALSN). Scout Capital Management has a $120.1 million position in the stock, comprising 1.5% of its 13F portfolio. Coming in second is Charles Clough of Clough Capital Partners, with a $34.8 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Other peers with similar optimism include Bill Miller’s Legg Mason Capital Management, D. E. Shaw’s D E Shaw and Mario Cibelli’s Marathon Partners.

Due to the fact that Allison Transmission Holdings Inc (NYSE:ALSN) has witnessed falling interest from the smart money, we can see that there was a specific group of hedgies who were dropping their positions entirely at the end of the first quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital dropped the biggest position of the “upper crust” of funds we key on, valued at an estimated $3.5 million in stock., and Daniel S. Och of OZ Management was right behind this move, as the fund sold off about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds at the end of the first quarter.

How have insiders been trading Allison Transmission Holdings Inc (NYSE:ALSN)?

Insider purchases made by high-level executives is particularly usable when the company in focus has experienced transactions within the past six months. Over the latest half-year time period, Allison Transmission Holdings Inc (NYSE:ALSN) has seen zero unique insiders purchasing, and 11 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Allison Transmission Holdings Inc (NYSE:ALSN). These stocks are Visteon Corp (NYSE:VC), TRW Automotive Holdings Corp. (NYSE:TRW), LKQ Corporation (NASDAQ:LKQ), Lear Corporation (NYSE:LEA), and WABCO Holdings Inc. (NYSE:WBC). This group of stocks belong to the auto parts industry and their market caps match ALSN’s market cap.

With the results demonstrated by our tactics, retail investors must always watch hedge fund and insider trading sentiment, and Allison Transmission Holdings Inc (NYSE:ALSN) shareholders fit into this picture quite nicely.

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