Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Ally Financial Inc (NYSE:ALLY) a good investment now? The best stock pickers are becoming hopeful. The number of long hedge fund positions increased by 8 lately. Our calculations also showed that ALLY isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the fresh hedge fund action surrounding Ally Financial Inc (NYSE:ALLY).
Hedge fund activity in Ally Financial Inc (NYSE:ALLY)
At the end of the second quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALLY over the last 16 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Oaktree Capital Management was the largest shareholder of Ally Financial Inc (NYSE:ALLY), with a stake worth $339.1 million reported as of the end of March. Trailing Oaktree Capital Management was First Pacific Advisors LLC, which amassed a stake valued at $262.6 million. Lakewood Capital Management, Magnolia Capital Fund, and Platinum Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were leading the bulls’ herd. Chiron Investment Management, managed by Ryan Caldwell, created the biggest position in Ally Financial Inc (NYSE:ALLY). Chiron Investment Management had $10.4 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $6.7 million investment in the stock during the quarter. The other funds with brand new ALLY positions are Tom Brown’s Second Curve Capital, Matthew Tewksbury’s Stevens Capital Management, and Phil Frohlich’s Prescott Group Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ally Financial Inc (NYSE:ALLY) but similarly valued. These stocks are The Liberty SiriusXM Group (NASDAQ:LSXMK), Viacom, Inc. (NASDAQ:VIAB), Textron Inc. (NYSE:TXT), and The Liberty SiriusXM Group (NASDAQ:LSXMA). This group of stocks’ market values resemble ALLY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSXMK | 42 | 2588588 | -3 |
| VIAB | 41 | 1052795 | 3 |
| TXT | 23 | 617924 | -1 |
| LSXMA | 34 | 1328002 | -7 |
| Average | 35 | 1396827 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1397 million. That figure was $2105 million in ALLY’s case. The Liberty SiriusXM Group (NASDAQ:LSXMK) is the most popular stock in this table. On the other hand Textron Inc. (NYSE:TXT) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ALLY as the stock returned 7.5% during Q3 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.
