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 Avis Budget Group Inc. (NASDAQ:CAR) and determine whether hedge funds skillfully traded this stock.
Is Avis Budget Group Inc. (NASDAQ:CAR) a buy right now? Investors who are in the know were getting less optimistic. The number of long hedge fund bets were cut by 2 lately. Avis Budget Group Inc. (NASDAQ:CAR) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that CAR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 23 hedge funds in our database with CAR positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are dozens of signals market participants put to use to grade stocks. A couple of the most useful signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outclass the market by a very impressive margin (see the details here).
Gabriel Plotkin of Melvin Capital Management
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's take a gander at the fresh hedge fund action surrounding Avis Budget Group Inc. (NASDAQ:CAR).
What have hedge funds been doing with Avis Budget Group Inc. (NASDAQ:CAR)?
At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAR over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, SRS Investment Management was the largest shareholder of Avis Budget Group Inc. (NASDAQ:CAR), with a stake worth $382 million reported as of the end of September. Trailing SRS Investment Management was Melvin Capital Management, which amassed a stake valued at $79 million. Pzena Investment Management, Glenview Capital, and Arrowstreet Capital 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 SRS Investment Management allocated the biggest weight to Avis Budget Group Inc. (NASDAQ:CAR), around 7.11% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, setting aside 1.44 percent of its 13F equity portfolio to CAR.
Because Avis Budget Group Inc. (NASDAQ:CAR) has experienced falling interest from hedge fund managers, we can see that there is a sect of funds that decided to sell off their entire stakes last quarter. Interestingly, Andrew Wellington and Jeff Keswin's Lyrical Asset Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, totaling an estimated $41.4 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $26.3 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Avis Budget Group Inc. (NASDAQ:CAR) but similarly valued. These stocks are United States Steel Corporation (NYSE:X), Sonos, Inc. (NASDAQ:SONO), Mersana Therapeutics, Inc. (NASDAQ:MRSN), Walker & Dunlop Inc. (NYSE:WD), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Spirit Airlines Incorporated (NYSE:SAVE), and MakeMyTrip Limited (NASDAQ:MMYT). This group of stocks' market values match CAR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position X,20,54402,3 SONO,35,327682,2 MRSN,25,581618,8 WD,18,73653,-1 ICPT,22,215147,3 SAVE,23,98598,-5 MMYT,10,28493,1 Average,21.9,197085,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $673 million in CAR's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 10 bullish hedge fund positions. Avis Budget Group Inc. (NASDAQ:CAR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CAR is 39.3. 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 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 gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on CAR as the stock returned 15% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.