A market correction in the third quarter, spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of CarMax, Inc (NYSE:KMX) during the quarter.
Is CarMax, Inc the right investment to pursue these days? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund positions fell by 13 lately. KMX was in 27 hedge funds’ portfolios at the end of the third quarter of 2015. There were 40 hedge funds in our database with KMX holdings at the end of the previous quarter. At the end of this article we will also compare KMX to other stocks including Akamai Technologies, Inc. (NASDAQ:AKAM), Macerich Co (NYSE:MAC), and Plains All American Pipeline, L.P. (NYSE:PAA) to get a better sense of its popularity.
To the average investor there are dozens of methods stock traders employ to size up their holdings. A duo of the less utilized methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outperform the broader indices by a very impressive margin (see the details here).
Now, we’re going to analyze the key action encompassing CarMax, Inc (NYSE:KMX).
How are hedge funds trading CarMax, Inc (NYSE:KMX)?
Heading into Q4, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Markel Gayner Asset Management, managed by Tom Gayner, holds the most valuable position in CarMax, Inc (NYSE:KMX). Markel Gayner Asset Management has a $291.4 million position in the stock, comprising 7.7% of its 13F portfolio. The second largest stake is held by Akre Capital Management, led by Charles Akre, holding a $164.5 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Gavin M. Abrams’ Abrams Bison Investments, Gilchrist Berg’s Water Street Capital and Greg Poole’s Echo Street Capital Management.
Since CarMax, Inc (NYSE:KMX) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies that elected to cut their positions entirely heading into Q4. Interestingly, Bain Capital’s Brookside Capital dropped the biggest stake of the 700 funds monitored by Insider Monkey, valued at close to $148.7 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund sold off about $72.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 13 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CarMax, Inc (NYSE:KMX) but similarly valued. These stocks are Akamai Technologies, Inc. (NASDAQ:AKAM), Macerich Co (NYSE:MAC), Plains All American Pipeline, L.P. (NYSE:PAA), and CA, Inc. (NASDAQ:CA). All of these stocks’ market caps are closest to KMX’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $891 million in KMX’s case. Akamai Technologies, Inc. (NASDAQ:AKAM) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 16 bullish hedge fund positions. CarMax, Inc (NYSE:KMX) 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 AKAM might be a better candidate to consider a long position.