Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Aluminum Corp. of China Limited (NYSE:ACH) changed recently.
Aluminum Corp. of China Limited (NYSE:ACH) was in 5 hedge funds’ portfolios at the end of June. ACH has seen an increase in support from the world’s most elite money managers recently. There were 4 hedge funds in our database with ACH holdings at the end of the previous quarter. Our calculations also showed that ACH isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the latest hedge fund action regarding Aluminum Corp. of China Limited (NYSE:ACH).
What does smart money think about Aluminum Corp. of China Limited (NYSE:ACH)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ACH over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Aluminum Corp. of China Limited (NYSE:ACH), which was worth $4.7 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $0.1 million worth of shares. Moreover, AQR Capital Management, Millennium Management, and Citadel Investment Group were also bullish on Aluminum Corp. of China Limited (NYSE:ACH), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Aluminum Corp. of China Limited (NYSE:ACH). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Aluminum Corp. of China Limited (NYSE:ACH). These stocks are Autoliv Inc. (NYSE:ALV), Zynga Inc (NASDAQ:ZNGA), AECOM (NYSE:ACM), and Monolithic Power Systems, Inc. (NASDAQ:MPWR). All of these stocks’ market caps match ACH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $597 million. That figure was $5 million in ACH’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Aluminum Corp. of China Limited (NYSE:ACH) is even less popular than ALV. Hedge funds dodged a bullet by taking a bearish stance towards ACH. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ACH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ACH investors were disappointed as the stock returned -11.1% during the third quarter and underperformed 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.