We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards General Motors Company (NYSE:GM).
Is GM a good stock to buy? General Motors Company (NYSE:GM) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. General Motors Company (NYSE:GM) was in 60 hedge funds’ portfolios at the end of September. The all time high for this statistics is 88. There were 69 hedge funds in our database with GM positions at the end of the second quarter. Our calculations also showed that GM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 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 S&P 500 ETFs by 66 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a glance at the recent hedge fund action regarding General Motors Company (NYSE:GM).
How are hedge funds trading General Motors Company (NYSE:GM)?
At the end of September, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter of 2020. On the other hand, there were a total of 76 hedge funds with a bullish position in GM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in General Motors Company (NYSE:GM), which was worth $2367.2 million at the end of the third quarter. On the second spot was Greenhaven Associates which amassed $539.4 million worth of shares. Eagle Capital Management, Arrowstreet Capital, and Diamond Hill 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 Greenhaven Associates allocated the biggest weight to General Motors Company (NYSE:GM), around 11.85% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, dishing out 7.59 percent of its 13F equity portfolio to GM.
Since General Motors Company (NYSE:GM) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, worth close to $137.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $31.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 9 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to General Motors Company (NYSE:GM). These stocks are Monster Beverage Corp (NASDAQ:MNST), HCA Healthcare Inc (NYSE:HCA), Roper Technologies Inc. (NYSE:ROP), Canadian Pacific Railway Limited (NYSE:CP), Honda Motor Co Ltd (NYSE:HMC), Digital Realty Trust, Inc. (NYSE:DLR), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market values are similar to GM’s market value.
|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 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1258 million. That figure was $4789 million in GM’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 11 bullish hedge fund positions. General Motors Company (NYSE:GM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GM is 57.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on GM as the stock returned 50.7% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.