The investment space related to the automotive industry has long needed a disruptor. Even though low gasoline prices have fueled the demand for new cars, a slowdown in the largest car market in the world has managed to offset a large part of this growth. The recent Volkswagen emissions scandal has also sparked some fears among investors in automotive stocks. In this way the IPO of New Business Netherlands NV (NYSE:RACE), better known as Ferrari NV, comes at a convenient moment, which is supported by the impressive success of said IPO.
The latest news in the IPO space was not very positive. Last week, First Data Corp (NYSE:FDC)’s stock, which was the largest IPO of 2015, closed over 1% lower in its first day and has lost over 5% since October 15. Albertsons, a supermarket chain operator, postponed its IPO amid the market volatility and Wal-Mart Stores, Inc. (NYSE:WMT)’s shares tumbling on the back of weak third quarter results (see details here). However, these IPO developments did not spook investors, with Ferrari’s offering having been oversubscribed last week, according to Bloomberg, citing people familiar with the matter.
Fiat Chrysler Automobiles NV (NYSE:FCAU), the majority shareholder of Ferrari, sold a 9% stake in the Italian sports car manufacturer, pricing 17.18 million shares at $52 apiece, which represents the highest end of the previously announced range of $48-to-$52 per share. After the IPO, Fiat Chrysler will remain the largest shareholder of Ferrari, having reduced its stake to 80% following the IPO. Piero Ferrari, the son of the company’s founder Enzo Ferrari, will retain a 10% holding in the company. Next year, Fiat Chrysler plans to distribute the remaining 80% of its stake in the Italian brand to its own shareholders.
Among the investors we track, the interest in automakers has been somewhat weak. Among the “Big Three” automakers: General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Fiat Chrysler, the most popular was GM, which was included in the equity portfolios of 104 funds at the end of June, while the aggregate value of their stakes was equal to over 10% of the company. On the other hand, in each of Ford and Fiat Chrysler, only 35 investors reported positions representing around 1.30% and 7.20% of the companies’ floats.
We have a long way to go until we can see whether or not Ferrari managed to capture the attention of smart money managers. Since we are just at the beginning of the fourth quarter, the next round of 13F filings where Ferrari will be included will start somewhere around January and will not end until the middle of February, after which we will be able to collect the data regarding the sentiment.
Why do we think it is important to follow the hedge fund sentiment? The reason is simple, we believe that in this way we can identify some of the most profitable stocks on the market. Even though hedge funds have been collectively lagging the market in the last several years, we determined that this weak performance is due to their large sizes and hedging positions, which are expected to underperform in a bull market. On the other hand, our focus are the 15 most popular small-cap stocks among hedge funds, which, according to our tests, can outperform the broader market by nearly one percentage point per month on average. Our strategy focuses on these 15 picks and it has returned 102% since August 2012, beating the S&P 500 ETF (SPY) by around 53 percentage points (see more details here).
In any case, the success of the IPO can already give us an opinion regarding Ferrari’s popularity among investors. Moreover, some of the current investors in Fiat Chrysler Automobiles NV (NYSE:FCAU) might consider benefitting from the IPO and buying shares of the company before receiving shares in the spin-off next year. Among the company’s top shareholders is Mohnish Pabrai‘s Dalal Street, which has invested 42% of its portfolio’s capital in Fiat Chrysler Automobiles NV (NYSE:FCAU), reporting ownership of 13.80 million shares in its most recent 13F filing. In addition, Harris Associates initiated a stake of 24.25 million shares during the third quarter. Rob Citrone’s Discovery Capital Management added around 1.33 million shares to its stake, taking it to 5.13 million shares.
Disclosure: None
