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Hedge Funds Are Selling Ally Financial Inc (ALLY)

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. This year hedge funds’ top 30 stock picks easily bested the broader market, at 6.7% compared to 2.6%, despite there being a few duds in there like Facebook (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Ally Financial Inc (NYSE:ALLY) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that ALLY isn’t among the 30 most popular stocks among hedge funds.

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’ 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Let’s check out the recent hedge fund action encompassing Ally Financial Inc (NYSE:ALLY).

How are hedge funds trading Ally Financial Inc (NYSE:ALLY)?

Heading into the fourth quarter of 2018, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter of 2018. On the other hand, there were a total of 50 hedge funds with a bullish position in ALLY at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ALLY Positions

The largest stake in Ally Financial Inc (NYSE:ALLY) was held by Lakewood Capital Management, which reported holding $239 million worth of stock at the end of September. It was followed by Oaktree Capital Management with a $230.4 million position. Other investors bullish on the company included First Pacific Advisors LLC, Arrowstreet Capital, and Basswood Capital.

Since Ally Financial Inc (NYSE:ALLY) has experienced a decline in interest from the smart money, it’s easy to see that there exists a select few funds that slashed their positions entirely by the end of the third quarter. It’s worth mentioning that David Tepper’s Appaloosa Management LP dropped the biggest stake of the 700 funds tracked by Insider Monkey, valued at close to $126.6 million in stock, and Tom Sandell’s Sandell Asset Management was right behind this move, as the fund sold off about $6.7 million worth. These moves are interesting, as total hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Ally Financial Inc (NYSE:ALLY). We will take a look at Ralph Lauren Corporation (NYSE:RL), Hologic, Inc. (NASDAQ:HOLX), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and The Gap Inc. (NYSE:GPS). This group of stocks’ market caps match ALLY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RL 28 990094 3
HOLX 22 686964 -2
NBIX 39 1287114 10
GPS 29 201712 1
Average 29.5 791471 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $791 million. That figure was $2.20 billion in ALLY’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand Hologic, Inc. (NASDAQ:HOLX) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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