Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Alcoa Inc (NYSE:AA).
Alcoa Inc was in 46 hedge funds’ portfolios at the end of September. AA has experienced an increase in enthusiasm from smart money in recent months. There were 45 hedge funds in our database with AA holdings at the end of the previous quarter. At the end of this article we will also compare AA to other stocks, including Cenovus Energy Inc (USA) (NYSE:CVE), Citizens Financial Group Inc (NYSE:CFG), and Genuine Parts Company (NYSE:GPC) to get a better sense of its popularity.
To the average investor there are several methods stock market investors employ to grade publicly traded companies. A pair of the most useful methods are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the best money managers can outperform their index-focused peers by a very impressive margin (see the details here).
Now, we’re going to take a gander at the new action encompassing Alcoa Inc (NYSE:AA).
What have hedge funds been doing with Alcoa Inc (NYSE:AA)?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, inching up by 2% from the previous quarter. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Seth Klarman’s Baupost Group has the most valuable position in Alcoa Inc (NYSE:AA), worth close to $504.9 million, accounting for 8.4% of its total 13F portfolio. Coming in second is Robert Rodriguez and Steven Romick of First Pacific Advisors LLC, with a $460.5 million position; 4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish encompass William B. Gray’s Orbis Investment Management, Ken Griffin’s Citadel Investment Group and Mike Masters’s Masters Capital Management.
As one would reasonably expect, key money managers have been driving this bullishness. Baupost Group, managed by Seth Klarman, assembled the most valuable position in Alcoa Inc (NYSE:AA). The fund had $504.9 million invested in the company at the end of the quarter. Jacob Doft’s Highline Capital Management also initiated a $35.8 million position during the quarter. The following funds were also among the new AA investors: Steve Cohen’s Point72 Asset Management, Paul Singer’s Elliott Management, and Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors.
Let’s also examine hedge fund activity in other stocks similar to Alcoa Inc (NYSE:AA). We will take a look at Cenovus Energy Inc (USA) (NYSE:CVE), Citizens Financial Group Inc (NYSE:CFG), Genuine Parts Company (NYSE:GPC), and Verisk Analytics, Inc. (NASDAQ:VRSK). All of these stocks’ market caps resemble AA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $847 million. That figure was $1.59 billion in AA’s case, which is a positive sign. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table, while Cenovus Energy Inc (USA) (NYSE:CVE) is the least popular one with only 16 bullish hedge fund positions. Alcoa Inc (NYSE:AA) is not the most popular stock in this group, but hedge fund interest is still above average. Although this is a slightly positive signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CFG might be a better candidate to consider a long position.