Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Standard Motor Products, Inc. (NYSE:SMP) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Standard Motor Products, Inc. (NYSE:SMP) a good investment right now? The best stock pickers are getting less optimistic. The number of long hedge fund positions shrunk by 4 in recent months. Our calculations also showed that SMP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In today’s marketplace there are tons of metrics stock traders have at their disposal to appraise their stock investments. A duo of the less known metrics are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top fund managers can outperform the market by a very impressive amount (see the details here).
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the fresh hedge fund action surrounding Standard Motor Products, Inc. (NYSE:SMP).
How have hedgies been trading Standard Motor Products, Inc. (NYSE:SMP)?
At Q4’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SMP over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Standard Motor Products, Inc. (NYSE:SMP), with a stake worth $82.5 million reported as of the end of September. Trailing Royce & Associates was GAMCO Investors, which amassed a stake valued at $8.2 million. AQR Capital Management, Citadel Investment Group, and Renaissance Technologies 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 Royce & Associates allocated the biggest weight to Standard Motor Products, Inc. (NYSE:SMP), around 0.74% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to SMP.
Since Standard Motor Products, Inc. (NYSE:SMP) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies who sold off their full holdings heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, valued at an estimated $1.8 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $0.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Standard Motor Products, Inc. (NYSE:SMP) but similarly valued. We will take a look at Qudian Inc. (NYSE:QD), Michaels Companies Inc (NASDAQ:MIK), Kearny Financial Corp. (NASDAQ:KRNY), and Alector, Inc. (NASDAQ:ALEC). All of these stocks’ market caps are closest to SMP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QD | 14 | 51185 | 2 |
| MIK | 26 | 156668 | 2 |
| KRNY | 21 | 130512 | 5 |
| ALEC | 13 | 284408 | 0 |
| Average | 18.5 | 155693 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $105 million in SMP’s case. Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand Alector, Inc. (NASDAQ:ALEC) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Standard Motor Products, Inc. (NYSE:SMP) is even less popular than ALEC. Hedge funds dodged a bullet by taking a bearish stance towards SMP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately SMP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SMP investors were disappointed as the stock returned -26.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
