It seems as if the financial crisis in Greece and the economic slowdown in China have started to have an effect on the U.S. stock markets. The shares of General Motors Company (NYSE:GM), Sprint Corp (NYSE:S), and MGM Resorts International (NYSE:MGM) all declined heavily in the morning trading session, all three of which have various exposure or reliance on the Chinese market. MGM Resorts was the worst affected of all of these stocks, witnessing a 7.82% drop in share prices.
General Motors Company (NYSE:GM) started the day poorly right from the start, and is down by 5.17% nearing the end of trading today. The shares of the best-selling global car manufacturer in 2014 were trading at $31.30, falling below its 2010 IPO price of $33. In addition to its exposure to China, another reason for the decline included today’s announced recall of 196,000 Hummer SUVs by the company. According to the automaker, the company was able to detect a fault in the motor controls of the ventilation fans of Hummer vehicles. General Motors Company (NYSE:GM) added that the controls overheat during long duration usage, increasing the risk of melting of the plastic controls, or even a potential fire. Nearly 165,000 recalled Hummer vehicles are operational in the United States only. This recall may have drummed up negative sentiment among investors, who are barely able to forget the recall notices issued by the automaker on 29 million vehicles last year. General Motors Company (NYSE:GM) enjoyed positive hedge fund sentiment at the end of the first quarter however, with 103 hedge funds in our database holding cumulative investments of $6.74 billion against holdings of $6.07 billion from 107 hedge funds at the end of 2014. It was among the five most popular automaker stock picks of hedge fund investors tracked by Insider Monkey in the first quarter, with Warren Buffett holding $1.54 billion in the company’s shares, owning 41.00 million of them.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 135% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.