Were Hedge Funds Right About Howmet Aerospace Inc. (HWM)?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Howmet Aerospace Inc. (NYSE:HWM).

Howmet Aerospace Inc. (NYSE:HWM) has experienced a decrease in activity from the world’s largest hedge funds of late. Howmet Aerospace Inc. (NYSE:HWM) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistic is 51. Our calculations also showed that HWM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

William Gray of Orbis Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a peek at the recent hedge fund action regarding Howmet Aerospace Inc. (NYSE:HWM).

Do Hedge Funds Think HWM Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HWM over the last 24 quarters. 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, Elliott Investment Management held the most valuable stake in Howmet Aerospace Inc. (NYSE:HWM), which was worth $1415.5 million at the end of the second quarter. On the second spot was Orbis Investment Management which amassed $722.9 million worth of shares. Kensico Capital, First Pacific Advisors LLC, and Steadfast 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 Elliott Investment Management allocated the biggest weight to Howmet Aerospace Inc. (NYSE:HWM), around 10.89% of its 13F portfolio. Kensico Capital is also relatively very bullish on the stock, setting aside 9.34 percent of its 13F equity portfolio to HWM.

Since Howmet Aerospace Inc. (NYSE:HWM) has experienced falling interest from the smart money, logic holds that there exists a select few fund managers that decided to sell off their positions entirely in the second quarter. At the top of the heap, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors dropped the biggest position of the 750 funds followed by Insider Monkey, worth an estimated $65.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $46.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds in the second quarter.

Let’s check out hedge fund activity in other stocks similar to Howmet Aerospace Inc. (NYSE:HWM). These stocks are Molina Healthcare, Inc. (NYSE:MOH), Agnico Eagle Mines Limited (NYSE:AEM), GDS Holdings Limited (NASDAQ:GDS), Godaddy Inc (NYSE:GDDY), Citrix Systems, Inc. (NASDAQ:CTXS), UDR, Inc. (NYSE:UDR), and Fair Isaac Corporation (NYSE:FICO). This group of stocks’ market values are similar to HWM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $1202 million. That figure was $3893 million in HWM’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Citrix Systems, Inc. (NASDAQ:CTXS) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Howmet Aerospace Inc. (NYSE:HWM) is more popular among hedge funds. Our overall hedge fund sentiment score for HWM is 78.6. 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. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 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 -3% since the end of the second quarter (through 11/5) 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 most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.