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Hedge Funds Were Selling Honda Motor (HMC) Even Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Honda Motor Co Ltd (NYSE:HMC) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Honda Motor Co Ltd (NYSE:HMC) has seen a decrease in activity from the world’s largest hedge funds in recent months. HMC was in 9 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 11 hedge funds in our database with HMC holdings at the end of the previous quarter. Our calculations also showed that HMC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most investors, hedge funds are viewed as unimportant, outdated financial tools of years past. While there are more than 8000 funds with their doors open today, We look at the elite of this group, around 850 funds. These money managers manage bulk of the smart money’s total capital, and by shadowing their best equity investments, Insider Monkey has found numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the latest hedge fund action regarding Honda Motor Co Ltd (NYSE:HMC).

What have hedge funds been doing with Honda Motor Co Ltd (NYSE:HMC)?

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the third quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in HMC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HMC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Honda Motor Co Ltd (NYSE:HMC). Renaissance Technologies has a $89.2 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Orbis Investment Management, managed by William B. Gray, which holds a $26.7 million position; 0.2% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and Michael Gelband’s ExodusPoint Capital. In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Honda Motor Co Ltd (NYSE:HMC), around 0.67% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, setting aside 0.19 percent of its 13F equity portfolio to HMC.

Since Honda Motor Co Ltd (NYSE:HMC) has witnessed bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers that elected to cut their positions entirely in the third quarter. Interestingly, Israel Englander’s Millennium Management sold off the largest investment of all the hedgies followed by Insider Monkey, worth close to $12.1 million in stock. D. E. Shaw’s fund, D E Shaw, also sold off its stock, about $3.2 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Honda Motor Co Ltd (NYSE:HMC). We will take a look at Prudential Public Limited Company (NYSE:PUK), Bank of Montreal (NYSE:BMO), Marriott International Inc (NYSE:MAR), and Phillips 66 (NYSE:PSX). This group of stocks’ market caps match HMC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PUK 6 47203 -6
BMO 13 224601 -2
MAR 37 2944131 -8
PSX 46 944856 10
Average 25.5 1040198 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1040 million. That figure was $148 million in HMC’s case. Phillips 66 (NYSE:PSX) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 6 bullish hedge fund positions. Honda Motor Co Ltd (NYSE:HMC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately HMC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HMC investors were disappointed as the stock returned -16.8% during the same time period 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 most of these stocks already outperformed the market in Q1.

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

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