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Do Hedge Funds Love Allison Transmission Holdings Inc (ALSN)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Allison Transmission Holdings Inc (NYSE:ALSN).

Allison Transmission Holdings Inc (NYSE:ALSN) was in 27 hedge funds’ portfolios at the end of March. ALSN has experienced a decrease in hedge fund interest of late. There were 33 hedge funds in our database with ALSN holdings at the end of the previous quarter. Our calculations also showed that ALSN 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 assumed to be slow, old investment vehicles of the past. While there are more than 8000 funds in operation today, Our researchers hone in on the crème de la crème of this club, around 850 funds. These investment experts have their hands on the majority of all hedge funds’ total capital, and by watching their top investments, Insider Monkey has determined many investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced 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 .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the fresh hedge fund action surrounding Allison Transmission Holdings Inc (NYSE:ALSN).

How are hedge funds trading Allison Transmission Holdings Inc (NYSE:ALSN)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALSN over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Allison Transmission Holdings Inc (NYSE:ALSN), which was worth $175.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $89.8 million worth of shares. GLG Partners, AQR Capital Management, and Arrowstreet Capital 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 Chiron Investment Management allocated the biggest weight to Allison Transmission Holdings Inc (NYSE:ALSN), around 1.61% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 0.75 percent of its 13F equity portfolio to ALSN.

Judging by the fact that Allison Transmission Holdings Inc (NYSE:ALSN) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds who sold off their positions entirely by the end of the first quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at about $54 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $12.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Allison Transmission Holdings Inc (NYSE:ALSN) but similarly valued. We will take a look at Cirrus Logic, Inc. (NASDAQ:CRUS), Tandem Diabetes Care Inc (NASDAQ:TNDM), Cree, Inc. (NASDAQ:CREE), and First Financial Bankshares Inc (NASDAQ:FFIN). This group of stocks’ market values are closest to ALSN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRUS 28 286330 3
TNDM 28 245964 -11
CREE 16 309952 -9
FFIN 14 28294 1
Average 21.5 217635 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $405 million in ALSN’s case. Cirrus Logic, Inc. (NASDAQ:CRUS) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 14 bullish hedge fund positions. Allison Transmission Holdings Inc (NYSE:ALSN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately ALSN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ALSN were disappointed as the stock returned 16.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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