Lear Corporation (LEA): Hedge Funds Are Standing Pat

Lear Corporation (NYSE:LEA) hedge funds are standing pat.

To many of your peers, hedge funds are seen as bloated, outdated investment tools of a period lost to current times. Although there are more than 8,000 hedge funds trading currently, Insider Monkey aim at the aristocrats of this group, about 525 funds. It is widely held that this group oversees most of the smart money’s total assets, and by watching their highest performing equity investments, we’ve spotted a number of investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 33 percentage points in 11 months (find the details here).

Equally as useful, bullish insider trading activity is another way to look at the stock market universe. Just as you’d expect, there are a variety of incentives for an executive to downsize shares of his or her company, but just one, very obvious reason why they would behave bullishly. Plenty of academic studies have demonstrated the useful potential of this tactic if shareholders understand what to do (learn more here).

Keeping this in mind, let’s study the newest info surrounding Lear Corporation (NYSE:LEA).

How are hedge funds trading Lear Corporation (NYSE:LEA)?

At the end of the second quarter, a total of 39 of the hedge funds we track were long in this stock, a change of 0% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully.

According to our 13F database, Marcato Capital Management, managed by Richard McGuire, holds the largest position in Lear Corporation (NYSE:LEA). Marcato Capital Management has a $341.8 million position in the stock, comprising 32.7% of its 13F portfolio. Sitting at the No. 2 spot is Natixis Global Asset Management of Harris Associates, with a $281.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds with similar optimism include D. E. Shaw’s D E Shaw, David Gallo’s Valinor Management LLC and Jim Simons’s Renaissance Technologies.

Since Lear Corporation (NYSE:LEA) has witnessed declining interest from upper-tier hedge fund managers, it’s easy to see that there was a specific group of fund managers who sold off their positions entirely last quarter. Interestingly, Keith Meister’s Corvex Capital cut the biggest stake of the “upper crust” of funds we monitor, worth close to $73.7 million in call options.. Keith Meister’s fund, Corvex Capital, also dumped its call options., about $27.4 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Lear Corporation (NYSE:LEA)?

Legal insider trading, particularly when it’s bullish, is particularly usable when the company in question has experienced transactions within the past half-year. Over the latest half-year time period, Lear Corporation (NYSE:LEA) has seen zero unique insiders purchasing, and 5 insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to Lear Corporation (NYSE:LEA). These stocks are Autoliv Inc. (NYSE:ALV), TRW Automotive Holdings Corp. (NYSE:TRW), LKQ Corporation (NASDAQ:LKQ), WABCO Holdings Inc. (NYSE:WBC), and Allison Transmission Holdings Inc (NYSE:ALSN). This group of stocks are in the auto parts industry and their market caps match LEA’s market cap.

Using the results shown by Insider Monkey’s studies, average investors should always watch hedge fund and insider trading activity, and Lear Corporation (NYSE:LEA) shareholders fit into this picture quite nicely.

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