The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Asbury Automotive Group, Inc. (NYSE:ABG), and what that likely means for the prospects of the company and its stock.
Asbury Automotive Group, Inc. (NYSE:ABG) has experienced an increase in support from the world’s most elite money managers in recent months. ABG was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with ABG positions at the end of the previous quarter. Our calculations also showed that ABG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Abrams of Abrams Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action surrounding Asbury Automotive Group, Inc. (NYSE:ABG).
How are hedge funds trading Asbury Automotive Group, Inc. (NYSE:ABG)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ABG over the last 17 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Abrams Capital Management, managed by David Abrams, holds the largest position in Asbury Automotive Group, Inc. (NYSE:ABG). Abrams Capital Management has a $194.7 million position in the stock, comprising 5.5% of its 13F portfolio. Coming in second is Ricky Sandler of Eminence Capital, with a $29.4 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners and Ken Heebner’s Capital Growth Management. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Asbury Automotive Group, Inc. (NYSE:ABG), around 5.45% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, dishing out 0.71 percent of its 13F equity portfolio to ABG.
As aggregate interest increased, key hedge funds were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, established the largest position in Asbury Automotive Group, Inc. (NYSE:ABG). Capital Growth Management had $9.2 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $3.7 million position during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, David E. Shaw’s D E Shaw, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Asbury Automotive Group, Inc. (NYSE:ABG) but similarly valued. These stocks are United States Steel Corporation (NYSE:X), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Hertz Global Holdings, Inc. (NYSE:HTZ), and Norbord Inc. (NYSE:OSB). This group of stocks’ market values are closest to ABG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| X | 20 | 169213 | 1 |
| KTOS | 21 | 76636 | 3 |
| HTZ | 25 | 1158188 | -5 |
| OSB | 6 | 15366 | 0 |
| Average | 18 | 354851 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $287 million in ABG’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 6 bullish hedge fund positions. Asbury Automotive Group, Inc. (NYSE:ABG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ABG, though not to the same extent, as the stock returned 8.3% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
