Did Hedge Funds Drop The Ball On Sonic Automotive Inc (SAH) ?

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Sonic Automotive Inc (NYSE:SAH) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of June. At the end of this article we will also compare SAH to other stocks including Weis Markets, Inc. (NYSE:WMK), Marten Transport, Ltd (NASDAQ:MRTN), and GasLog Partners LP (NYSE:GLOP) to get a better sense of its popularity. Our calculations also showed that SAH isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the new hedge fund action regarding Sonic Automotive Inc (NYSE:SAH).

What does smart money think about Sonic Automotive Inc (NYSE:SAH)?

At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in SAH a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Paul Marshall Marshall Wace

The largest stake in Sonic Automotive Inc (NYSE:SAH) was held by Marshall Wace LLP, which reported holding $5.9 million worth of stock at the end of March. It was followed by Driehaus Capital with a $4.6 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and D E Shaw.

Because Sonic Automotive Inc (NYSE:SAH) has experienced falling interest from the smart money, logic holds that there were a few money managers who sold off their full holdings by the end of the second quarter. Intriguingly, Ian Cumming and Joseph Steinberg’s Leucadia National said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund dropped about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Sonic Automotive Inc (NYSE:SAH). We will take a look at Weis Markets, Inc. (NYSE:WMK), Marten Transport, Ltd (NASDAQ:MRTN), GasLog Partners LP (NYSE:GLOP), and Vocera Communications Inc (NYSE:VCRA). All of these stocks’ market caps are similar to SAH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMK 13 69855 -2
MRTN 18 43749 1
GLOP 5 17752 1
VCRA 14 52283 -3
Average 12.5 45910 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $27 million in SAH’s case. Marten Transport, Ltd (NASDAQ:MRTN) is the most popular stock in this table. On the other hand GasLog Partners LP (NYSE:GLOP) is the least popular one with only 5 bullish hedge fund positions. Sonic Automotive Inc (NYSE:SAH) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SAH as the stock returned 34.9% during the same time frame and outperformed the market by an even larger margin.

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