Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at IAA, Inc. (NYSE:IAA) from the perspective of those elite funds.
IAA, Inc. (NYSE:IAA) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Our calculations also showed that IAA 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jeffrey Gates of Gates Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding IAA, Inc. (NYSE:IAA).
How have hedgies been trading IAA, Inc. (NYSE:IAA)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in IAA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in IAA, Inc. (NYSE:IAA), which was worth $106.9 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $102.2 million worth of shares. Gates Capital Management, Cardinal Capital, and Southpoint Capital Advisors 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 Bodenholm Capital allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 22.72% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, earmarking 9.68 percent of its 13F equity portfolio to IAA.
Since IAA, Inc. (NYSE:IAA) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Matt Sirovich and Jeremy Mindich’s Scopia Capital said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $89.9 million in stock. Lee Ainslie’s fund, Maverick Capital, also dropped its stock, about $79.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 11 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to IAA, Inc. (NYSE:IAA). These stocks are KT Corporation (NYSE:KT), Cullen/Frost Bankers, Inc. (NYSE:CFR), National Instruments Corporation (NASDAQ:NATI), and Hanesbrands Inc. (NYSE:HBI). All of these stocks’ market caps are closest to IAA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KT | 18 | 267914 | -1 |
| CFR | 20 | 116202 | 2 |
| NATI | 22 | 310660 | 0 |
| HBI | 32 | 672396 | 10 |
| Average | 23 | 341793 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $758 million in IAA’s case. Hanesbrands Inc. (NYSE:HBI) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 18 bullish hedge fund positions. IAA, Inc. (NYSE:IAA) 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 IAA, though not to the same extent, as the stock returned 8.6% 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.
