While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Honda Motor Co Ltd (NYSE:HMC).
Is HMC a good stock to buy now? Honda Motor Co Ltd (NYSE:HMC) was in 11 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. HMC shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 10 hedge funds in our database with HMC holdings at the end of June. Our calculations also showed that HMC 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 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 we’re going to view the latest hedge fund action surrounding Honda Motor Co Ltd (NYSE:HMC).
Do Hedge Funds Think HMC Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HMC over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Honda Motor Co Ltd (NYSE:HMC), with a stake worth $156 million reported as of the end of September. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $98.9 million. Arrowstreet Capital, Orbis Investment Management, and Millennium 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 Orbis Investment Management allocated the biggest weight to Honda Motor Co Ltd (NYSE:HMC), around 0.16% of its 13F portfolio. Fisher Asset Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to HMC.
As one would reasonably expect, specific money managers were breaking ground themselves. D E Shaw, managed by D. E. Shaw, assembled the most outsized position in Honda Motor Co Ltd (NYSE:HMC). D E Shaw had $0.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.6 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Tewksbury’s Stevens Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Honda Motor Co Ltd (NYSE:HMC) but similarly valued. We will take a look at Digital Realty Trust, Inc. (NYSE:DLR), Eaton Corporation plc (NYSE:ETN), DuPont de Nemours Inc (NYSE:DD), Baxter International Inc. (NYSE:BAX), National Grid plc (NYSE:NGG), American Electric Power Company, Inc. (NYSE:AEP), and Rocket Companies, Inc. (NYSE:RKT). All of these stocks’ market caps are closest to HMC’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 32.9 hedge funds with bullish positions and the average amount invested in these stocks was $1097 million. That figure was $314 million in HMC’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. Honda Motor Co Ltd (NYSE:HMC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HMC is 35.9. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on HMC as the stock returned 25.2% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.