Hedge Funds Aren’t Crazy About KAR Auction Services Inc (KAR)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. The second half of 2015 and the first few months of this year was a stressful period for hedge funds. However, things have been taking a turn for the better in the second half of this year. Small-cap stocks which hedge funds are usually overweight outperformed the market by double digits and it may be a good time to pay attention to hedge funds’ picks before it is too late. In this article we are going to analyze the hedge fund sentiment towards KAR Auction Services Inc (NYSE:KAR).

KAR Auction Services Inc (NYSE:KAR) was in 35 hedge funds’ portfolios at the end of September. KAR investors should be aware of a decrease in support from the world’s most successful money managers of late. There were 36 hedge funds in our database with KAR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Arista Networks Inc (NYSE:ANET), TIM Participacoes SA (ADR) (NYSE:TSU), and Liberty Property Trust (NYSE:LPT) to gather more data points.

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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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How have hedgies been trading KAR Auction Services Inc (NYSE:KAR)?

Heading into the fourth quarter of 2016, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 3% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in KAR heading into this year. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).


When looking at the institutional investors followed by Insider Monkey, D. E. Shaw’s D E Shaw has the biggest position in KAR Auction Services Inc (NYSE:KAR), worth close to $144.6 million. Coming in second is Ricky Sandler of Eminence Capital, with a $130.5 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Amy Minella’s Cardinal Capital, David Gallo’s Valinor Management LLC and Anand Parekh’s Alyeska Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that KAR Auction Services Inc (NYSE:KAR) has encountered a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of fund managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Daniel S. Och’s OZ Management cashed in the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $142.4 million in stock, and Greg Poole’s Echo Street Capital Management was right behind this move, as the fund sold off about $7.5 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as KAR Auction Services Inc (NYSE:KAR) but similarly valued. These stocks are Arista Networks Inc (NYSE:ANET), TIM Participacoes SA (ADR) (NYSE:TSU), Liberty Property Trust (NYSE:LPT), and Pinnacle Foods Inc (NYSE:PF). This group of stocks’ market caps are similar to KAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANET 17 225054 0
TSU 13 327137 -3
LPT 14 77164 -1
PF 41 1449617 8

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $911 million in KAR’s case. Pinnacle Foods Inc (NYSE:PF) is the most popular stock in this table. On the other hand TIM Participacoes SA (ADR) (NYSE:TSU) is the least popular one with only 13 bullish hedge fund positions. KAR Auction Services Inc (NYSE:KAR) 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. In this regard PF might be a better candidate to consider taking a long position in.

Disclosure: None