“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Avis Budget Group Inc. (NASDAQ:CAR) and see how it was affected.
Avis Budget Group Inc. (NASDAQ:CAR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare CAR to other stocks including Adient plc (NYSE:ADNT), Otter Tail Corporation (NASDAQ:OTTR), and Tri Pointe Group Inc (NYSE:TPH) to get a better sense of its popularity.
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.
Larry Robbins of Glenview Capital
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. Let’s take a glance at the latest hedge fund action regarding Avis Budget Group Inc. (NASDAQ:CAR).
Hedge fund activity in Avis Budget Group Inc. (NASDAQ:CAR)
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CAR over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, SRS Investment Management held the most valuable stake in Avis Budget Group Inc. (NASDAQ:CAR), which was worth $457.5 million at the end of the third quarter. On the second spot was Glenview Capital which amassed $122.2 million worth of shares. Renaissance Technologies, Pzena Investment Management, and Lyrical Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SRS Investment Management allocated the biggest weight to Avis Budget Group Inc. (NASDAQ:CAR), around 12.35% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, earmarking 1.37 percent of its 13F equity portfolio to CAR.
Due to the fact that Avis Budget Group Inc. (NASDAQ:CAR) has experienced falling interest from hedge fund managers, logic holds that there was a specific group of money managers who sold off their positions entirely last quarter. Interestingly, Brett Barakett’s Tremblant Capital said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $40.1 million in stock. Ric Dillon’s fund, Diamond Hill Capital, also dropped its stock, about $13.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Avis Budget Group Inc. (NASDAQ:CAR) but similarly valued. We will take a look at Adient plc (NYSE:ADNT), Otter Tail Corporation (NASDAQ:OTTR), Tri Pointe Group Inc (NYSE:TPH), and LegacyTexas Financial Group Inc (NASDAQ:LTXB). This group of stocks’ market caps are similar to CAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADNT | 25 | 590269 | 7 |
| OTTR | 14 | 79670 | 2 |
| TPH | 24 | 230367 | 7 |
| LTXB | 10 | 92773 | -5 |
| Average | 18.25 | 248270 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $952 million in CAR’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand LegacyTexas Financial Group Inc (NASDAQ:LTXB) is the least popular one with only 10 bullish hedge fund positions. Avis Budget Group Inc. (NASDAQ:CAR) 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 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. Unfortunately CAR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CAR were disappointed as the stock returned 5.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
