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Did Hedge Funds Make The Right Call On PACCAR Inc (PCAR) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PACCAR Inc (NASDAQ:PCAR) and determine whether hedge funds skillfully traded this stock.

PACCAR Inc (NASDAQ:PCAR) has seen an increase in hedge fund interest lately. Our calculations also showed that PCAR 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind we’re going to analyze the recent hedge fund action surrounding PACCAR Inc (NASDAQ:PCAR).

How have hedgies been trading PACCAR Inc (NASDAQ:PCAR)?

At Q1’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCAR over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in PACCAR Inc (NASDAQ:PCAR), which was worth $139.2 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $66.4 million worth of shares. AQR Capital Management, Alyeska 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 Impala Asset Management allocated the biggest weight to PACCAR Inc (NASDAQ:PCAR), around 4.39% of its 13F portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, setting aside 2.26 percent of its 13F equity portfolio to PCAR.

With a general bullishness amongst the heavyweights, some big names have jumped into PACCAR Inc (NASDAQ:PCAR) headfirst. Alyeska Investment Group, managed by Anand Parekh, assembled the most outsized position in PACCAR Inc (NASDAQ:PCAR). Alyeska Investment Group had $38.9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $23.4 million position during the quarter. The other funds with brand new PCAR positions are Brandon Haley’s Holocene Advisors, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PACCAR Inc (NASDAQ:PCAR) but similarly valued. We will take a look at Tyson Foods, Inc. (NYSE:TSN), Ball Corporation (NYSE:BLL), CRH PLC (NYSE:CRH), and TE Connectivity Ltd. (NYSE:TEL). This group of stocks’ market valuations are similar to PCAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSN 41 906465 -17
BLL 41 697826 -3
CRH 10 131812 5
TEL 33 1381411 -11
Average 31.25 779379 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $486 million in PCAR’s case. Tyson Foods, Inc. (NYSE:TSN) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 10 bullish hedge fund positions. PACCAR Inc (NASDAQ:PCAR) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on PCAR, though not to the same extent, as the stock returned 23% during the second quarter and outperformed the market as well.

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