Is Honda Motor Co Ltd (ADR) (NYSE:HMC) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other successful investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments (for some reason media paid a ton of attention to Ackman’s gigantic JC Penney and Valeant failures) and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Honda Motor Co Ltd (ADR) (NYSE:HMC) a buy here? Hedge funds seem to be turning bullish. Among the funds in our database, the number of bullish hedge fund positions that are disclosed in regulatory 13F filings increased by three during the third quarter. At the end of this article we will also compare HMC to other stocks including Caterpillar Inc. (NYSE:CAT), Kinder Morgan Inc (NYSE:KMI), and Banco Santander (Brasil) SA (ADR) (NYSE:BSBR) to get a better sense of its popularity.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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With all of this in mind, let’s check out the new action encompassing Honda Motor Co Ltd (ADR) (NYSE:HMC).
What does the smart money think about Honda Motor Co Ltd (ADR) (NYSE:HMC)?
At the end of September, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, up by 38% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in HMC over the last five quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the biggest position in Honda Motor Co Ltd (ADR) (NYSE:HMC). Renaissance Technologies has a $103.7 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is William B. Gray of Orbis Investment Management, with a $14.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that Orbis Investment Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, some big names have been driving this bullishness. Orbis Investment Management, led by William B. Gray, assembled the most outsized position in Honda Motor Co Ltd (ADR) (NYSE:HMC). Orbis Investment Management had $14.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $12.1 million position during the quarter. The following funds were also among the new HMC investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Ken Griffin’s Citadel Investment Group.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Honda Motor Co Ltd (ADR) (NYSE:HMC) but similarly valued. These stocks are Caterpillar Inc. (NYSE:CAT), Kinder Morgan Inc (NYSE:KMI), Banco Santander (Brasil) SA (ADR) (NYSE:BSBR), and Lloyds Banking Group PLC (ADR) (NYSE:LYG). This group of stocks’ market caps are similar to HMC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAT | 32 | 1460921 | 1 |
| KMI | 68 | 2836616 | 15 |
| BSBR | 5 | 47432 | 5 |
| LYG | 11 | 334783 | 1 |
As you can see these stocks had an average of 29 funds with bullish positions and the average amount invested in these stocks was $1.17 billion. That figure was just $150 million in HMC’s case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (ADR) (NYSE:BSBR) is the least popular one with only five bullish hedge fund positions. Honda Motor Co Ltd (ADR) (NYSE:HMC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard KMI might be a better candidate to consider taking a long position in.
Disclosure: none
