Were Hedge Funds Right About Warming Up To Allison Transmission (ALSN)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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 financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Allison Transmission Holdings Inc (NYSE:ALSN) based on those filings.

Allison Transmission Holdings Inc (NYSE:ALSN) was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2019. ALSN shareholders have witnessed an increase in hedge fund interest lately. There were 31 hedge funds in our database with ALSN holdings at the end of the previous quarter. Our calculations also showed that ALSN 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 21st century investor’s toolkit there are a large number of gauges market participants have at their disposal to size up publicly traded companies. Some of the most innovative gauges are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outclass the S&P 500 by a very impressive amount (see the details here).

Curtis Schenker of Scoggin

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the new hedge fund action regarding Allison Transmission Holdings Inc (NYSE:ALSN).

How have hedgies been trading Allison Transmission Holdings Inc (NYSE:ALSN)?

Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in ALSN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Allison Transmission Holdings Inc (NYSE:ALSN) was held by Renaissance Technologies, which reported holding $235.5 million worth of stock at the end of September. It was followed by D E Shaw with a $146.6 million position. Other investors bullish on the company included GLG Partners, AQR Capital Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Chiron Investment Management allocated the biggest weight to Allison Transmission Holdings Inc (NYSE:ALSN), around 2.16% of its 13F portfolio. Scoggin is also relatively very bullish on the stock, dishing out 1.02 percent of its 13F equity portfolio to ALSN.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Chiron Investment Management, managed by Ryan Caldwell, created the biggest position in Allison Transmission Holdings Inc (NYSE:ALSN). Chiron Investment Management had $15.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $12.3 million position during the quarter. The following funds were also among the new ALSN investors: Michael Cowley’s Sandbar Asset Management, Curtis Schenker and Craig Effron’s Scoggin, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Allison Transmission Holdings Inc (NYSE:ALSN) but similarly valued. These stocks are PG&E Corporation (NYSE:PCG), Synovus Financial Corp. (NYSE:SNV), Harley-Davidson, Inc. (NYSE:HOG), and OneMain Holdings Inc (NYSE:OMF). All of these stocks’ market caps are similar to ALSN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCG 50 2755115 -16
SNV 35 691562 -4
HOG 19 104510 -2
OMF 39 529947 10
Average 35.75 1020284 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1020 million. That figure was $769 million in ALSN’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Harley-Davidson, Inc. (NYSE:HOG) is the least popular one with only 19 bullish hedge fund positions. Allison Transmission Holdings Inc (NYSE:ALSN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ALSN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALSN investors were disappointed as the stock returned -34% during the same time period 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 most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
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.