After a rocky start to the year, major U.S. stock indexes continued to fall on the second trading day of 2016. Among the stocks driving these declines were Walt Disney Co (NYSE:DIS), Fitbit Inc (NYSE:FIT), Acacia Research Corp (NASDAQ:ACTG), Alcoa Inc (NYSE:AA) and General Motors Company (NYSE:GM). So, let’s take a look into the main events driving the substantial declines in these stocks, and into how the funds from our database feel about these companies.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith (and money) in large-cap stocks. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 53 percentage points, returning over 102% (read the details here).
Let’s start with Walt Disney Co (NYSE:DIS), which tumbled 2.5% in Tuesday trading after analysts at Macquarie downgraded their rating on the stock from Outperform to Neutral. The demotion was based on the premise of “Star Wars: The Force Awakens” being already part of the past (meaning it has already peaked in terms of box office revenue) and on fears surrounding the cord-cutting of ESPN. Similar to the Street’s analysts, hedge funds seem to be losing confidence in Walt Disney Co (NYSE:DIS) as well. At the end of the third quarter of 2015, 48 funds among those we track had disclosed long stakes in the company, down from 60 in the previous quarter. In fact, Columbus Circle Investors, managed by Clifford G. Fox, sold all of its shares (almost 1.5 million) over the third quarter of 2015.
Up next is Fitbit Inc (NYSE:FIT), which has dropped by 12% on Tuesday afternoon after the company unveiled its new $199 smartwatch, the Blaze. Although the company describes it as a fitness-oriented wearable and claims that the battery lasts much longer than the one in the Apple Watch, it seems like the Street was not impressed with the new product – some say, because it does not support third-party apps. Similar to Disney’s case, hedge fund interest in Fitbit Inc (NYSE:FIT) also declined over the third quarter. As of September 30, 20 funds among those we track disclosed being long the stock, with John Griffin’s Blue Ridge Capital (the largest hedge fund shareholder) having trimmed its exposure by 71% to roughly 1.03 million shares, worth about $39 million.
On the next page we will take a look into the reasons behind the declines at Acacia Research Corp, Alcoa, and General Motors.
Another big loser on Tuesday was small cap Acacia Research Corp (NASDAQ:ACTG), which tumbled by more than 8.1% after Barclays’ Darrin Peller downgraded the stock to ‘Underweight’, cutting his price target to $4 from $12. Moreover, hedge funds are also becoming less constructive on Acacia Research Corp (NASDAQ:ACTG). Over the third quarter, the company lost the support of five of the funds we track, with only 11 funds reporting long positions. However, it should be noted that these 11 funds hold 13.5% of the company, while John W. Rogers’ Ariel Investments, the largest shareholder among them, boosted its exposure by 17% over the quarter, to more than 3.2 million shares.
Shares of Alcoa Inc (NYSE:AA) were also trading down, by roughly 4%, on Tuesday afternoon as aluminum prices continue to fall, and technicals go on to deteriorate. However, Alcoa Inc (NYSE:AA) is the only company in this list that saw the hedge fund interest increase over the last reported quarter. The number of long hedge fund stakes rose to 46 from 45 over the period, and Seth Klarman’s Baupost Group, which started its position with 52.27 million shares in the third quarter, held the largest of them all.
Finally, there’s General Motors Company (NYSE:GM). The stock of the famed automaker has declined by more than 3% after it reported disappointing December sales. Although the U.S. sales were up by an annual 5.7%, analysts at Bloomberg were expecting a 10% growth. General Motors Company (NYSE:GM) is quite popular among hedge funds, with 88 funds among those we track having disclosed long stakes in the company as of the end of the third quarter – down from 104 at the end of the second quarter. However, these 88 funds owned 10.8% of the company’s outstanding stock. As many investors know, Warren Buffett’s Berkshire Hathaway holds the largest stake in the automaker; after boosting its exposure by 22% over the third quarter, Berkshire declared holding 50 million shares of General Motors – or more than $1.5 billion in stock.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.