This Metric Says You Are Smart to Sell Honda Motor Co Ltd (ADR) (HMC)

Honda Motor Co Ltd (ADR) (NYSE:HMC) investors should be aware of a decrease in hedge fund sentiment of late.

According to most investors, hedge funds are assumed to be unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, we at Insider Monkey choose to focus on the masters of this club, about 450 funds. Most estimates calculate that this group oversees the majority of all hedge funds’ total asset base, and by paying attention to their top picks, we have figured out a few investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as beneficial, optimistic insider trading activity is a second way to break down the financial markets. Just as you’d expect, there are many motivations for an executive to sell shares of his or her company, but only one, very clear reason why they would buy. Several empirical studies have demonstrated the impressive potential of this method if investors know what to do (learn more here).

Keeping this in mind, we’re going to take a glance at the recent action surrounding Honda Motor Co Ltd (ADR) (NYSE:HMC).

Hedge fund activity in Honda Motor Co Ltd (ADR) (NYSE:HMC)

In preparation for this quarter, a total of 6 of the hedge funds we track were bullish in this stock, a change of -45% from the previous quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially.

Of the funds we track, Capital Growth Management, managed by Ken Heebner, holds the most valuable position in Honda Motor Co Ltd (ADR) (NYSE:HMC). Capital Growth Management has a $28.3 million position in the stock, comprising 0.7% of its 13F portfolio. On Capital Growth Management’s heels is Wexford Capital, managed by Charles Davidson, which held a $0.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Sander Gerber’s Hudson Bay Capital Management, Ken Fisher’s Fisher Asset Management and Matthew Hulsizer’s PEAK6 Capital Management.

Seeing as Honda Motor Co Ltd (ADR) (NYSE:HMC) has experienced declining sentiment from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their entire stakes last quarter. Interestingly, Jim Simons’s Renaissance Technologies cut the largest investment of the “upper crust” of funds we track, valued at close to $9.2 million in stock.. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $1.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds last quarter.

Insider trading activity in Honda Motor Co Ltd (ADR) (NYSE:HMC)

Bullish insider trading is particularly usable when the company in focus has seen transactions within the past six months. Over the latest 180-day time frame, Honda Motor Co Ltd (ADR) (NYSE:HMC) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Honda Motor Co Ltd (ADR) (NYSE:HMC). These stocks are Tata Motors Limited (ADR) (NYSE:TTM), Toyota Motor Corporation (ADR) (NYSE:TM), General Motors Company (NYSE:GM), Nissan Motor Co., Ltd. (ADR) (PINK:NSANY), and Ford Motor Company (NYSE:F). All of these stocks are in the auto manufacturers – major industry and their market caps resemble HMC’s market cap.