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Is Fiat Chrysler Automobiles NV (FCAU) Going to Burn These Hedge Funds?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Fiat Chrysler Automobiles NV (NYSE:FCAU).

Is Fiat Chrysler Automobiles NV (NYSE:FCAU) a buy right now? Money managers are selling. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that FCAU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FCAU was in 27 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with FCAU positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

MOHNISH PABRAI

Mohnish Pabrai of Pabrai Funds

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the recent hedge fund action regarding Fiat Chrysler Automobiles NV (NYSE:FCAU).

What does smart money think about Fiat Chrysler Automobiles NV (NYSE:FCAU)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in FCAU a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

FCAU_dec2019

The largest stake in Fiat Chrysler Automobiles NV (NYSE:FCAU) was held by Tiger Global Management, which reported holding $973.5 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $168.3 million position. Other investors bullish on the company included Pabrai Funds, Two Sigma Advisors, and Nantahala Capital Management. In terms of the portfolio weights assigned to each position Pabrai Funds allocated the biggest weight to Fiat Chrysler Automobiles NV (NYSE:FCAU), around 43.4% of its portfolio. Aquamarine Capital Management is also relatively very bullish on the stock, designating 13.07 percent of its 13F equity portfolio to FCAU.

Because Fiat Chrysler Automobiles NV (NYSE:FCAU) has faced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers who sold off their positions entirely last quarter. Interestingly, Karthik Sarma’s SRS Investment Management said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $36.2 million in stock. Brian Gootzeit and Andrew Frank’s fund, StackLine Partners, also dropped its stock, about $7.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Fiat Chrysler Automobiles NV (NYSE:FCAU). We will take a look at KLA Corporation (NASDAQ:KLAC), McKesson Corporation (NYSE:MCK), Sprint Corporation (NYSE:S), and Lululemon Athletica inc. (NASDAQ:LULU). This group of stocks’ market caps resemble FCAU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLAC 28 784370 4
MCK 39 1982389 3
S 23 885703 -2
LULU 46 1527406 -3
Average 34 1294967 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1295 million. That figure was $1493 million in FCAU’s case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Sprint Corporation (NYSE:S) is the least popular one with only 23 bullish hedge fund positions. Fiat Chrysler Automobiles NV (NYSE:FCAU) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FCAU as the stock returned 13.9% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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