Were Hedge Funds Right About Ally Financial (ALLY)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Ally Financial Inc (NYSE:ALLY) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Ally Financial Inc (NYSE:ALLY) was in 54 hedge funds’ portfolios at the end of December. ALLY has experienced a decrease in support from the world’s most elite money managers of late. There were 55 hedge funds in our database with ALLY positions at the end of the previous quarter. Our calculations also showed that ALLY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

With all of this in mind we’re going to take a gander at the new hedge fund action regarding Ally Financial Inc (NYSE:ALLY).

How have hedgies been trading Ally Financial Inc (NYSE:ALLY)?

At Q4’s end, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the third quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in ALLY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ally Financial Inc (NYSE:ALLY) was held by Oaktree Capital Management, which reported holding $334.4 million worth of stock at the end of September. It was followed by First Pacific Advisors LLC with a $198.8 million position. Other investors bullish on the company included GLG Partners, Lakewood Capital Management, and Magnolia Capital Fund. In terms of the portfolio weights assigned to each position Glendon Capital Management allocated the biggest weight to Ally Financial Inc (NYSE:ALLY), around 16.85% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, earmarking 16.78 percent of its 13F equity portfolio to ALLY.

Because Ally Financial Inc (NYSE:ALLY) has faced falling interest from the smart money, we can see that there exists a select few hedge funds that decided to sell off their full holdings last quarter. Intriguingly, Ravi Chopra’s Azora Capital sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $39.1 million in stock, and Usman Waheed’s Strycker View Capital was right behind this move, as the fund sold off about $23.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Ally Financial Inc (NYSE:ALLY). These stocks are Allegion plc (NYSE:ALLE), Chewy, Inc. (NYSE:CHWY), Alleghany Corporation (NYSE:Y), and Teradyne, Inc. (NASDAQ:TER). This group of stocks’ market caps match ALLY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $658 million. That figure was $1810 million in ALLY’s case. Chewy, Inc. (NYSE:CHWY) is the most popular stock in this table. On the other hand Alleghany Corporation (NYSE:Y) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately ALLY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ALLY were disappointed as the stock returned -48.2% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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