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Hedge Fund Favorites vs. Allison Transmission Holdings Inc (ALSN) In 2019

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Allison Transmission Holdings Inc (NYSE:ALSN) investors should pay attention to an increase in hedge fund sentiment lately. ALSN was in 28 hedge funds’ portfolios at the end of the third quarter of 2019. There were 25 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 Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a gander at the new hedge fund action regarding Allison Transmission Holdings Inc (NYSE:ALSN).

How have hedgies been trading Allison Transmission Holdings Inc (NYSE:ALSN)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in ALSN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Ashe Capital held the most valuable stake in Allison Transmission Holdings Inc (NYSE:ALSN), which was worth $234.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $180.7 million worth of shares. D E Shaw, GLG Partners, 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 Ashe Capital allocated the biggest weight to Allison Transmission Holdings Inc (NYSE:ALSN), around 17.89% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, setting aside 0.67 percent of its 13F equity portfolio to ALSN.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, assembled the largest position in Allison Transmission Holdings Inc (NYSE:ALSN). Alyeska Investment Group had $2 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $0.9 million investment in the stock during the quarter. The other funds with brand new ALSN positions are Michael Gelband’s ExodusPoint Capital, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Hoon Kim’s Quantinno Capital.

Let’s check out 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 Grupo Televisa SAB (NYSE:TV), The Scotts Miracle-Gro Company (NYSE:SMG), Harley-Davidson, Inc. (NYSE:HOG), and BOK Financial Corporation (NASDAQ:BOKF). This group of stocks’ market valuations are closest to ALSN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TV 14 826232 -4
SMG 30 413760 6
HOG 18 20463 4
BOKF 16 189307 -3
Average 19.5 362441 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $362 million. That figure was $883 million in ALSN’s case. The Scotts Miracle-Gro Company (NYSE:SMG) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ALSN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALSN were disappointed as the stock returned 11.5% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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