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Is PACCAR Inc (PCAR) Going to Burn These Hedge Funds?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards PACCAR Inc (NASDAQ:PCAR) during the quarter below.

Is PACCAR Inc (NASDAQ:PCAR) the right investment to pursue these days? The best stock pickers are getting less bullish. The number of long hedge fund positions dropped by 1 recently. Our calculations also showed that pcar isn’t among the 30 most popular stocks among hedge funds. PCAR was in 20 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with PCAR holdings at the end of the previous quarter.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Mario Gabelli of GAMCO Investors

Mario Gabelli of GAMCO Investors

We’re going to view the recent hedge fund action surrounding PACCAR Inc (NASDAQ:PCAR).

How have hedgies been trading PACCAR Inc (NASDAQ:PCAR)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PCAR over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PCAR Positions

Among these funds, Citadel Investment Group held the most valuable stake in PACCAR Inc (NASDAQ:PCAR), which was worth $34.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $34.4 million worth of shares. Moreover, Two Sigma Advisors, GAMCO Investors, and GLG Partners were also bullish on PACCAR Inc (NASDAQ:PCAR), allocating a large percentage of their portfolios to this stock.

Because PACCAR Inc (NASDAQ:PCAR) has experienced falling interest from the smart money, it’s safe to say that there was a specific group of funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $28.6 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dropped its stock, about $1.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PACCAR Inc (NASDAQ:PCAR) but similarly valued. We will take a look at Cummins Inc. (NYSE:CMI), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), PG&E Corporation (NYSE:PCG), and Consolidated Edison, Inc. (NYSE:ED). This group of stocks’ market values are similar to PCAR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMI 32 634157 4
TLK 4 97709 -1
PCG 60 4736112 -1
ED 11 1004030 -3
Average 26.75 1618002 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.62 billion. That figure was $227 million in PCAR’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. PACCAR Inc (NASDAQ:PCAR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PCG might be a better candidate to consider a long position.

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

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