Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Howmet Aerospace Inc. (NYSE:HWM).
Is HWM a good stock to buy? Howmet Aerospace Inc. (NYSE:HWM) investors should pay attention to a decrease in enthusiasm from smart money of late. Howmet Aerospace Inc. (NYSE:HWM) was in 44 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 51. There were 47 hedge funds in our database with HWM holdings at the end of June. Our calculations also showed that HWM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Michael Lowenstein of Kensico Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Howmet Aerospace Inc. (NYSE:HWM).
Do Hedge Funds Think HWM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HWM over the last 25 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Elliott Investment Management was the largest shareholder of Howmet Aerospace Inc. (NYSE:HWM), with a stake worth $1281.2 million reported as of the end of September. Trailing Elliott Investment Management was Orbis Investment Management, which amassed a stake valued at $634.5 million. Kensico Capital, Farallon Capital, and Adage Capital 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 Kensico Capital allocated the biggest weight to Howmet Aerospace Inc. (NYSE:HWM), around 10.82% of its 13F portfolio. Elliott Investment Management is also relatively very bullish on the stock, setting aside 9.19 percent of its 13F equity portfolio to HWM.
Judging by the fact that Howmet Aerospace Inc. (NYSE:HWM) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who were dropping their positions entirely heading into Q4. It’s worth mentioning that Robert Pitts’s Steadfast Capital Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, valued at close to $193.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $77.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q4.
Let’s check out hedge fund activity in other stocks similar to Howmet Aerospace Inc. (NYSE:HWM). These stocks are Futu Holdings Limited (NASDAQ:FUTU), Citrix Systems, Inc. (NASDAQ:CTXS), WestRock Company (NYSE:WRK), Farfetch Limited (NYSE:FTCH), American Airlines Group Inc (NASDAQ:AAL), Teck Resources Ltd (NYSE:TECK), and Open Text Corporation (NASDAQ:OTEX). This group of stocks’ market values are closest to HWM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FUTU | 23 | 664044 | -8 |
| CTXS | 24 | 766516 | 1 |
| WRK | 34 | 719952 | 2 |
| FTCH | 51 | 3258687 | -12 |
| AAL | 30 | 650793 | 5 |
| TECK | 41 | 1318693 | 1 |
| OTEX | 20 | 386647 | 6 |
| Average | 31.9 | 1109333 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $1109 million. That figure was $3495 million in HWM’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 20 bullish hedge fund positions. Howmet Aerospace Inc. (NYSE:HWM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HWM is 66.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately HWM wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on HWM were disappointed as the stock returned -9.8% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Howmet Aerospace Inc. (NYSE:HWM)
Follow Howmet Aerospace Inc. (NYSE:HWM)
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Disclosure: None. This article was originally published at Insider Monkey.
