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Did Hedge Funds Make The Right Call On Avis Budget Group Inc. (CAR) ?

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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Avis Budget Group Inc. (NASDAQ:CAR) and determine whether the smart money was really smart about this stock.

Avis Budget Group Inc. (NASDAQ:CAR) has experienced a decrease in enthusiasm from smart money in recent months. CAR was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with CAR holdings at the end of the previous quarter. Our calculations also showed that CAR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are perceived as underperforming, outdated investment vehicles of years past. While there are over 8000 funds in operation at the moment, Our experts hone in on the crème de la crème of this group, about 850 funds. These money managers handle most of the hedge fund industry’s total capital, and by watching their top equity investments, Insider Monkey has revealed several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a glance at the new hedge fund action surrounding Avis Budget Group Inc. (NASDAQ:CAR).

How are hedge funds trading Avis Budget Group Inc. (NASDAQ:CAR)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in CAR a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is CAR A Good Stock To Buy?

Among these funds, SRS Investment Management held the most valuable stake in Avis Budget Group Inc. (NASDAQ:CAR), which was worth $225 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $53.2 million worth of shares. Glenview Capital, Lyrical Asset Management, and AQR 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 SRS Investment Management allocated the biggest weight to Avis Budget Group Inc. (NASDAQ:CAR), around 4.89% of its 13F portfolio. Prentice Capital Management is also relatively very bullish on the stock, dishing out 1.88 percent of its 13F equity portfolio to CAR.

Seeing as Avis Budget Group Inc. (NASDAQ:CAR) has experienced a decline in interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds that elected to cut their positions entirely by the end of the first quarter. Intriguingly, Paul Reeder and Edward Shapiro’s PAR Capital Management dumped the largest position of the 750 funds monitored by Insider Monkey, worth close to $7.3 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund cut about $4.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Avis Budget Group Inc. (NASDAQ:CAR). We will take a look at Gentherm Inc (NASDAQ:THRM), Southside Bancshares, Inc. (NASDAQ:SBSI), Antero Midstream Corp (NYSE:AM), and Plains GP Holdings LP (NYSE:PAGP). This group of stocks’ market valuations resemble CAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
THRM 11 54847 -6
SBSI 8 43135 0
AM 14 45083 0
PAGP 22 88065 -4
Average 13.75 57783 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $476 million in CAR’s case. Plains GP Holdings LP (NYSE:PAGP) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Avis Budget Group Inc. (NASDAQ:CAR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CAR as the stock returned 64.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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