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Were Hedge Funds Right About Flocking Into Credit Acceptance Corp. (CACC)?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Credit Acceptance Corp. (NASDAQ:CACC) based on that data.

Is Credit Acceptance Corp. (NASDAQ:CACC) a bargain? Money managers are getting more optimistic. The number of bullish hedge fund bets inched up by 2 recently. Our calculations also showed that CACC isn’t among the 30 most popular stocks among hedge funds. CACC was in 22 hedge funds’ portfolios at the end of December. There were 20 hedge funds in our database with CACC positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

William Von Mueffling - Cantillon Capital Management

We’re going to take a glance at the fresh hedge fund action encompassing Credit Acceptance Corp. (NASDAQ:CACC).

What does the smart money think about Credit Acceptance Corp. (NASDAQ:CACC)?

At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2018. On the other hand, there were a total of 19 hedge funds with a bullish position in CACC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CACC_apr2019

Among these funds, Abrams Bison Investments held the most valuable stake in Credit Acceptance Corp. (NASDAQ:CACC), which was worth $248.4 million at the end of the third quarter. On the second spot was BloombergSen which amassed $174.5 million worth of shares. Moreover, Cantillon Capital Management, Gobi Capital, and Hound Partners were also bullish on Credit Acceptance Corp. (NASDAQ:CACC), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, specific money managers have jumped into Credit Acceptance Corp. (NASDAQ:CACC) headfirst. Gobi Capital, managed by Bo Shan, assembled the largest position in Credit Acceptance Corp. (NASDAQ:CACC). Gobi Capital had $88.1 million invested in the company at the end of the quarter. Sims Lansing’s Lansing Management also initiated a $12.1 million position during the quarter. The following funds were also among the new CACC investors: Matthew Iorio’s White Elm Capital, Noam Gottesman’s GLG Partners, and Brandon Haley’s Holocene Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Credit Acceptance Corp. (NASDAQ:CACC) but similarly valued. These stocks are Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), Sensata Technologies Holding N.V. (NYSE:ST), Grupo Televisa SAB (NYSE:TV), and PulteGroup, Inc. (NYSE:PHM). All of these stocks’ market caps resemble CACC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALNY 28 628086 -4
ST 23 1307637 -3
TV 14 786715 -5
PHM 24 567082 6
Average 22.25 822380 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $822 million. That figure was $990 million in CACC’s case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 14 bullish hedge fund positions. Credit Acceptance Corp. (NASDAQ:CACC) is not the least popular stock in this group but hedge fund interest is still below average though hedge fund sentiment is improving. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on CACC, though not to the same extent, as the stock returned 19% and outperformed the market as well.

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

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