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Hedge Funds Are Warming Up To Alcoa Corporation (AA)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Alcoa Corporation (NYSE:AA).

Is Alcoa Corporation (NYSE:AA) a buy right now? Prominent investors are taking an optimistic view. The number of bullish hedge fund positions went up by 3 in recent months. Our calculations also showed that AA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 51 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Didric Cederholm Lion Point Capital

Didric Cederholm of Lion Point Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 let’s take a glance at the recent hedge fund action encompassing Alcoa Corporation (NYSE:AA).

How have hedgies been trading Alcoa Corporation (NYSE:AA)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AA over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in Alcoa Corporation (NYSE:AA) was held by Orbis Investment Management, which reported holding $63.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $42.9 million position. Other investors bullish on the company included Two Sigma Advisors, Masters Capital Management, and Lion Point. In terms of the portfolio weights assigned to each position Meru Capital allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 6.87% of its 13F portfolio. Lion Point is also relatively very bullish on the stock, designating 2.76 percent of its 13F equity portfolio to AA.

As industrywide interest jumped, specific money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most outsized position in Alcoa Corporation (NYSE:AA). Adage Capital Management had $9.2 million invested in the company at the end of the quarter. Guru Ramakrishnan’s Meru Capital also initiated a $3.2 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Greg Eisner’s Engineers Gate Manager, and Mike Vranos’s Ellington.

Let’s also examine hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). These stocks are Crocs, Inc. (NASDAQ:CROX), Great Western Bancorp Inc (NYSE:GWB), FBL Financial Group, Inc. (NYSE:FFG), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI). All of these stocks’ market caps are closest to AA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CROX 25 302666 -11
GWB 10 12427 -7
FFG 8 15395 1
ARI 17 41289 1
Average 15 92944 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $214 million in AA’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Alcoa Corporation (NYSE:AA) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on AA as the stock returned 49.5% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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