We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Alcoa Corporation (NYSE:AA) and determine whether hedge funds skillfully traded this stock.
Alcoa Corporation (NYSE:AA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds’ portfolios at the end of September. Our calculations also showed that AA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare AA to other stocks including Mirati Therapeutics, Inc. (NASDAQ:MRTX), West Fraser Timber Co. Ltd. (NYSE:WFG), and XPO Logistics Inc (NYSE:XPO) to get a better sense of its popularity.
William Gray of Orbis Investment Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to review the recent hedge fund action regarding Alcoa Corporation (NYSE:AA).
Do Hedge Funds Think AA Is A Good Stock To Buy Now?
At the end of September, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in AA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Alcoa Corporation (NYSE:AA). Fisher Asset Management has a $314.8 million position in the stock, comprising 0.2% of its 13F portfolio. On Fisher Asset Management’s heels is Theleme Partners, led by Patrick Degorce, holding a $240.2 million position; 6.9% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass William B. Gray’s Orbis Investment Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Value Star Asset Management allocated the biggest weight to Alcoa Corporation (NYSE:AA), around 20.11% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, setting aside 7.41 percent of its 13F equity portfolio to AA.
Due to the fact that Alcoa Corporation (NYSE:AA) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies that decided to sell off their entire stakes heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $19.4 million in call options, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $18.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Alcoa Corporation (NYSE:AA) but similarly valued. We will take a look at Mirati Therapeutics, Inc. (NASDAQ:MRTX), West Fraser Timber Co. Ltd. (NYSE:WFG), XPO Logistics Inc (NYSE:XPO), Tempur Sealy International Inc. (NYSE:TPX), Concentrix Corporation (NASDAQ:CNXC), AECOM (NYSE:ACM), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). All of these stocks’ market caps resemble AA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRTX | 46 | 2796323 | -9 |
| WFG | 22 | 513697 | -3 |
| XPO | 49 | 1833910 | -8 |
| TPX | 37 | 1299293 | 2 |
| CNXC | 21 | 586853 | 0 |
| ACM | 39 | 783809 | 7 |
| BHVN | 33 | 1063983 | 6 |
| Average | 35.3 | 1268267 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1268 million. That figure was $1746 million in AA’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Concentrix Corporation (NASDAQ:CNXC) is the least popular one with only 21 bullish hedge fund positions. Alcoa Corporation (NYSE:AA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AA is 74.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on AA as the stock returned 16.1% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
