In this article we will check out the progression of hedge fund sentiment towards IAA, Inc. (NYSE:IAA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
IAA, Inc. (NYSE:IAA) was in 36 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 43. IAA has experienced a decrease in support from the world’s most elite money managers lately. There were 43 hedge funds in our database with IAA holdings at the end of June. Our calculations also showed that IAA isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dan Loeb of Third Point
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a look at the recent hedge fund action regarding IAA, Inc. (NYSE:IAA).
Do Hedge Funds Think IAA Is A Good Stock To Buy Now?
At the end of September, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in IAA over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Third Point held the most valuable stake in IAA, Inc. (NYSE:IAA), which was worth $548.6 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $192.7 million worth of shares. Cadian Capital, Gates Capital Management, and Marshall Wace LLP 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 Third Point allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 5.49% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, dishing out 5.27 percent of its 13F equity portfolio to IAA.
Because IAA, Inc. (NYSE:IAA) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedge funds who were dropping their full holdings in the third quarter. Interestingly, John Smith Clark’s Southpoint Capital Advisors sold off the biggest position of the 750 funds watched by Insider Monkey, worth about $82.9 million in stock, and Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management was right behind this move, as the fund dropped about $78.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to IAA, Inc. (NYSE:IAA). We will take a look at Store Capital Corporation (NYSE:STOR), Mohawk Industries, Inc. (NYSE:MHK), GFL Environmental Inc. (NYSE:GFL), argenx SE (NASDAQ:ARGX), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), The Mosaic Company (NYSE:MOS), and Cabot Oil & Gas Corporation (NYSE:COG). This group of stocks’ market caps resemble IAA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STOR | 20 | 763350 | 4 |
| MHK | 41 | 701743 | 9 |
| GFL | 20 | 361757 | 4 |
| ARGX | 22 | 1144400 | -7 |
| KNX | 52 | 618019 | 13 |
| MOS | 31 | 714302 | -1 |
| COG | 25 | 203223 | -6 |
| Average | 30.1 | 643828 | 2.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $1300 million in IAA’s case. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the most popular stock in this table. On the other hand Store Capital Corporation (NYSE:STOR) is the least popular one with only 20 bullish hedge fund positions. IAA, Inc. (NYSE:IAA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IAA is 48.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on IAA as the stock returned 23.8% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
