Were Hedge Funds Right About Piling Into Ally Financial Inc (ALLY)?

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 Ally Financial Inc (NYSE:ALLY) and determine whether hedge funds skillfully traded this stock.

Ally Financial Inc (NYSE:ALLY) has seen a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that ALLY 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.

In the eyes of most traders, hedge funds are seen as unimportant, outdated investment tools of yesteryear. While there are over 8000 funds with their doors open today, Our researchers choose to focus on the leaders of this group, about 850 funds. It is estimated that this group of investors watch over bulk of all hedge funds’ total asset base, and by paying attention to their unrivaled investments, Insider Monkey has uncovered numerous investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Howard Marks of Oaktree Capital Management

With all of this in mind let’s analyze the fresh hedge fund action surrounding Ally Financial Inc (NYSE:ALLY).

Hedge fund activity in Ally Financial Inc (NYSE:ALLY)

At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ALLY over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Oaktree Capital Management was the largest shareholder of Ally Financial Inc (NYSE:ALLY), with a stake worth $206.6 million reported as of the end of September. Trailing Oaktree Capital Management was Platinum Asset Management, which amassed a stake valued at $90.9 million. Adage Capital Management, Magnolia Capital Fund, 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 Glendon Capital Management allocated the biggest weight to Ally Financial Inc (NYSE:ALLY), around 16.25% of its 13F portfolio. Punch Card Capital is also relatively very bullish on the stock, designating 12.97 percent of its 13F equity portfolio to ALLY.

Since Ally Financial Inc (NYSE:ALLY) has experienced falling interest from the smart money, we can see that there is a sect of fund managers who were dropping their entire stakes heading into Q4. Intriguingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the biggest stake of the 750 funds followed by Insider Monkey, valued at close to $198.8 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund said goodbye to about $20 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 9 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Ally Financial Inc (NYSE:ALLY). These stocks are Whirlpool Corporation (NYSE:WHR), Voya Financial Inc (NYSE:VOYA), Ascendis Pharma A/S (NASDAQ:ASND), and Douglas Emmett, Inc. (NYSE:DEI). All of these stocks’ market caps match ALLY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WHR 25 567352 -3
VOYA 32 617032 -11
ASND 33 2201133 -5
DEI 22 526330 3
Average 28 977962 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $978 million. That figure was $932 million in ALLY’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 22 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 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 ALLY as the stock returned 38.9% 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.