The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 34.7% through November 22nd, vs. a gain of 26.2% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards General Motors Company (NYSE:GM), and what that likely means for the prospects of the company and its stock.
General Motors Company (NYSE:GM) investors should pay attention to an increase in hedge fund sentiment recently. GM was in 68 hedge funds’ portfolios at the end of September. There were 49 hedge funds in our database with GM positions at the end of the previous quarter. Our calculations also showed that GM isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Let’s take a look at the key hedge fund action surrounding General Motors Company (NYSE:GM).
Hedge fund activity in General Motors Company (NYSE:GM)
At the end of the third quarter, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 39% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GM over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in General Motors Company (NYSE:GM), which was worth $2708.7 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $763.1 million worth of shares. Greenhaven Associates, Citadel Investment Group, and Greenlight Capital 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 Greenlight Capital allocated the biggest weight to General Motors Company (NYSE:GM), around 16.6% of its portfolio. Greenhaven Associates is also relatively very bullish on the stock, setting aside 15.28 percent of its 13F equity portfolio to GM.
As aggregate interest increased, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in General Motors Company (NYSE:GM). Arrowstreet Capital had $89.3 million invested in the company at the end of the quarter. Renaissance Technologies also made a $80.5 million investment in the stock during the quarter. The other funds with brand new GM positions are Josh Donfeld and David Rogers’s Castle Hook Partners, Benjamin A. Smith’s Laurion Capital Management, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks similar to General Motors Company (NYSE:GM). We will take a look at Takeda Pharmaceutical Company Limited (NYSE:TAK), Prologis Inc (NYSE:PLD), Vodafone Group Plc (NASDAQ:VOD), and DuPont de Nemours, Inc. (NYSE:DD). This group of stocks’ market caps resemble GM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $948 million. That figure was $6376 million in GM’s case. E I Du Pont De Nemours And Co (NYSE:DD) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks General Motors Company (NYSE:GM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately GM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GM were disappointed as the stock returned -5.7% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.