Hedge Funds Are Dumping Harley-Davidson, Inc. (HOG)

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. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Harley-Davidson, Inc. (NYSE:HOG) investors should be aware of a decrease in hedge fund sentiment lately. HOG was in 24 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with HOG positions at the end of the previous quarter. At the end of this article we will also compare HOG to other stocks, including POSCO (ADR) (NYSE:PKX), Discovery Communications Inc. (NASDAQ:DISCA), and Markel Corporation (NYSE:MKL) to get a better sense of its popularity.

Today there are tons of formulas stock market investors employ to value stocks. A duo of the most under-the-radar formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outclass the market by a significant margin (see the details here).

Keeping this in mind, we’re going to check out the key action surrounding Harley-Davidson, Inc. (NYSE:HOG).

How have hedgies been trading Harley-Davidson, Inc. (NYSE:HOG)?

Heading into Q4, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 11% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cantillon Capital Management, run by William von Mueffling, holds the largest position in Harley-Davidson, Inc. (NYSE:HOG). At the end of the quarter, the fund had a $332.9 million position in the stock, comprising 7.1% of its 13F portfolio. The second largest stake is held by Select Equity Group, managed by Robert Joseph Caruso, which holds a $98.2 million position; 0.9% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions comprise Joel Greenblatt’s Gotham Asset Management, David Harding’s Winton Capital Management and Daniel Bubis’s Tetrem Capital Management.

Because Harley-Davidson, Inc. (NYSE:HOG) has faced a declination in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest investment of the 700 funds followed by Insider Monkey, valued at an estimated $16.3 million in call options. Alexander Mitchell’s fund, Scopus Asset Management, also said goodbye to its holding of HOG call options, about $14.1 million worth of. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Harley-Davidson, Inc. (NYSE:HOG) but similarly valued. We will take a look at POSCO (ADR) (NYSE:PKX), Discovery Communications Inc. (NASDAQ:DISCA), Markel Corporation (NYSE:MKL), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks’ market caps are closest to HOG’s market cap.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $689 million. That figure was $693 million in HOG’s case. Citrix Systems, Inc. (NASDAQ:CTXS) is the most popular stock in this table, while POSCO (ADR) (NYSE:PKX) is the least popular one with only 12 bullish hedge fund positions. Harley-Davidson, Inc. (NYSE:HOG) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CTXS might be a better candidate to consider a long position.