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Should You Avoid Autoliv Inc. (ALV)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Autoliv Inc. (NYSE:ALV) based on those filings.

Autoliv Inc. (NYSE:ALV) has seen a decrease in activity from the world’s largest hedge funds in recent months. ALV was in 15 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with ALV positions at the end of the previous quarter. Our calculations also showed that ALV isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Christer Gardell of Cevian Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action regarding Autoliv Inc. (NYSE:ALV).

What does smart money think about Autoliv Inc. (NYSE:ALV)?

At Q1’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALV over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Cevian Capital was the largest shareholder of Autoliv Inc. (NYSE:ALV), with a stake worth $263.3 million reported as of the end of September. Trailing Cevian Capital was Holocene Advisors, which amassed a stake valued at $37.2 million. Point72 Asset Management, LFL Advisers, and D E Shaw 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 Cevian Capital allocated the biggest weight to Autoliv Inc. (NYSE:ALV), around 81.76% of its 13F portfolio. LFL Advisers is also relatively very bullish on the stock, setting aside 9.88 percent of its 13F equity portfolio to ALV.

Judging by the fact that Autoliv Inc. (NYSE:ALV) has faced bearish sentiment from the smart money, it’s safe to say that there exists a select few money managers that slashed their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest investment of all the hedgies monitored by Insider Monkey, comprising about $6.1 million in stock. Andre F. Perold’s fund, HighVista Strategies, also said goodbye to its stock, about $1.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Autoliv Inc. (NYSE:ALV) but similarly valued. We will take a look at Black Hills Corporation (NYSE:BKH), Virtu Financial Inc (NASDAQ:VIRT), Herbalife Nutrition Ltd. (NYSE:HLF), and IAA, Inc. (NYSE:IAA). All of these stocks’ market caps are closest to ALV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BKH 18 170302 -6
VIRT 17 72830 2
HLF 31 2056361 -1
IAA 39 804594 2
Average 26.25 776022 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $776 million. That figure was $367 million in ALV’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand Virtu Financial Inc (NASDAQ:VIRT) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Autoliv Inc. (NYSE:ALV) is even less popular than VIRT. Hedge funds clearly dropped the ball on ALV as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on ALV as the stock returned 39.9% so far in the second quarter and outperformed the market by an even larger margin.

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