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Were Hedge Funds Right About Piling Into Adient plc (ADNT)?

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 Adient plc (NYSE:ADNT) and determine whether hedge funds skillfully traded this stock.

Adient plc (NYSE:ADNT) shareholders have witnessed a decrease in hedge fund interest of late. ADNT was in 32 hedge funds’ portfolios at the end of March. There were 36 hedge funds in our database with ADNT positions at the end of the previous quarter. Our calculations also showed that ADNT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clifton Robbins Blue Harbour

Clifton S. Robbins of Blue Harbour Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s go over the latest hedge fund action encompassing Adient plc (NYSE:ADNT).

How are hedge funds trading Adient plc (NYSE:ADNT)?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in ADNT 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.

Among these funds, Blue Harbour Group held the most valuable stake in Adient plc (NYSE:ADNT), which was worth $59.4 million at the end of the third quarter. On the second spot was Newtyn Management which amassed $19 million worth of shares. Greenlight Capital, Greenhaven Associates, and Lakewood Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to Adient plc (NYSE:ADNT), around 10.57% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, earmarking 6.56 percent of its 13F equity portfolio to ADNT.

Since Adient plc (NYSE:ADNT) has experienced declining sentiment from the smart money, it’s safe to say that there were a few hedge funds that slashed their full holdings last quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest position of all the hedgies followed by Insider Monkey, worth about $8.9 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund dumped about $5 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Adient plc (NYSE:ADNT) but similarly valued. We will take a look at Provident Financial Services, Inc. (NYSE:PFS), Virtusa Corporation (NASDAQ:VRTU), PBF Energy Inc (NYSE:PBF), and DCP Midstream LP (NYSE:DCP). This group of stocks’ market caps are closest to ADNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFS 12 26202 -4
VRTU 13 35689 -1
PBF 22 70769 -10
DCP 4 7421 -2
Average 12.75 35020 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $205 million in ADNT’s case. PBF Energy Inc (NYSE:PBF) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Adient plc (NYSE:ADNT) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ADNT as the stock returned 81% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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