Were Hedge Funds Right About Dumping KAR Auction Services Inc (KAR)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of KAR Auction Services Inc (NYSE:KAR) based on that data.

Is KAR Auction Services Inc (NYSE:KAR) a good investment today? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions decreased by 10 recently. Our calculations also showed that KAR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the latest hedge fund action regarding KAR Auction Services Inc (NYSE:KAR).

What does smart money think about KAR Auction Services Inc (NYSE:KAR)?

Heading into the third quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KAR over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with KAR Positions

The largest stake in KAR Auction Services Inc (NYSE:KAR) was held by Maverick Capital, which reported holding $126.6 million worth of stock at the end of March. It was followed by Gates Capital Management with a $124.1 million position. Other investors bullish on the company included Cardinal Capital, Scopia Capital, and D E Shaw.

Since KAR Auction Services Inc (NYSE:KAR) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers who sold off their entire stakes by the end of the second quarter. Intriguingly, Parag Vora’s HG Vora Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, worth about $102.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $40.3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KAR Auction Services Inc (NYSE:KAR) but similarly valued. We will take a look at Helen of Troy Limited (NASDAQ:HELE), GrafTech International Ltd. (NYSE:EAF), Community Bank System, Inc. (NYSE:CBU), and White Mountains Insurance Group Ltd (NYSE:WTM). This group of stocks’ market caps resemble KAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HELE 20 152715 -1
EAF 27 246790 3
CBU 12 29802 4
WTM 17 180077 1
Average 19 152346 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $632 million in KAR’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks KAR Auction Services Inc (NYSE:KAR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KAR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KAR were disappointed as the stock returned -1.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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