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Here is What Hedge Funds Think About Ally Financial Inc (ALLY)

In this article you are going to find out whether hedge funds think Ally Financial Inc (NYSE:ALLY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Ally Financial Inc (NYSE:ALLY) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that ALLY 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. Keeping this in mind let’s take a look at the fresh hedge fund action regarding Ally Financial Inc (NYSE:ALLY).

What does smart money think about Ally Financial Inc (NYSE:ALLY)?

At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ALLY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Oaktree Capital Management held the most valuable stake in Ally Financial Inc (NYSE:ALLY), which was worth $206.6 million at the end of the third quarter. On the second spot was Platinum Asset Management which amassed $90.9 million worth of shares. Adage Capital Management, Magnolia Capital Fund, and Lakewood Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Glendon Capital Management allocated the biggest weight to Ally Financial Inc (NYSE:ALLY), around 16.25% of its 13F portfolio. Punch Card Capital is also relatively very bullish on the stock, setting aside 12.97 percent of its 13F equity portfolio to ALLY.

Judging by the fact that Ally Financial Inc (NYSE:ALLY) has faced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who were dropping their entire stakes last quarter. Intriguingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the largest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $198.8 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund cut about $20 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 9 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ally Financial Inc (NYSE:ALLY) but similarly valued. These stocks are Whirlpool Corporation (NYSE:WHR), Voya Financial Inc (NYSE:VOYA), Ascendis Pharma A/S (NASDAQ:ASND), and Douglas Emmett, Inc. (NYSE:DEI). This group of stocks’ market caps are closest to ALLY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WHR 25 567352 -3
VOYA 32 617032 -11
ASND 33 2201133 -5
DEI 22 526330 3
Average 28 977962 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $978 million. That figure was $932 million in ALLY’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) 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 gained 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. Unfortunately ALLY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ALLY were disappointed as the stock returned 11.3% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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