Here is What Hedge Funds Think About Alcoa Corporation (AA)

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Alcoa Corporation (NYSE:AA) from the perspective of those elite funds.

Alcoa Corporation (NYSE:AA) has seen a decrease in support from the world’s most elite money managers lately. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 take a peek at the fresh hedge fund action regarding Alcoa Corporation (NYSE:AA).

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

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AA over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


The largest stake in Alcoa Corporation (NYSE:AA) was held by Orbis Investment Management, which reported holding $139.7 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $69.5 million position. Other investors bullish on the company included Renaissance Technologies, Elliott Management, and Millennium Management.

Judging by the fact that Alcoa Corporation (NYSE:AA) has witnessed a decline in interest from the smart money, we can see that there exists a select few fund managers that elected to cut their positions entirely last quarter. It’s worth mentioning that Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC dropped the largest stake of the 750 funds tracked by Insider Monkey, worth close to $33.2 million in call options. Mike Masters’s fund, Masters Capital Management, also said goodbye to its call options, about $28.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 8 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Alcoa Corporation (NYSE:AA). We will take a look at Teradata Corporation (NYSE:TDC), Echostar Corporation (NASDAQ:SATS), Landstar System, Inc. (NASDAQ:LSTR), and Rexford Industrial Realty Inc (NYSE:REXR). This group of stocks’ market valuations are closest to AA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TDC 22 280507 2
SATS 28 563065 -1
LSTR 22 221384 -1
REXR 17 201790 -4
Average 22.25 316687 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $412 million in AA’s case. Echostar Corporation (NASDAQ:SATS) is the most popular stock in this table. On the other hand Rexford Industrial Realty Inc (NYSE:REXR) is the least popular one with only 17 bullish hedge fund positions. Alcoa Corporation (NYSE:AA) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately AA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AA were disappointed as the stock returned -14.3% 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 this year.

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