Here’s What Hedge Funds Think About Autoliv Inc. (ALV)

Nina Todic

Sat, Apr 20, 2019, 6:48 PM

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Autoliv Inc. (NYSE:ALV).

Autoliv Inc. (NYSE:ALV) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare ALV to other stocks including The Macerich Company (NYSE:MAC), Encompass Health Corporation (NYSE:EHC), and Aqua America Inc (NYSE:WTR) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Let's view the fresh hedge fund action encompassing Autoliv Inc. (NYSE:ALV).

How have hedgies been trading Autoliv Inc. (NYSE:ALV)?

Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALV over the last 14 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cevian Capital, managed by Christer Gardell and Lars Forberg, holds the largest position in Autoliv Inc. (NYSE:ALV). Cevian Capital has a $402 million position in the stock, comprising 74.9% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $9.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Ed Beddow and William Tichy's Beddow Capital Management, Kenneth Squire's 13D Management and Cliff Asness's AQR Capital Management.

Judging by the fact that Autoliv Inc. (NYSE:ALV) has faced falling interest from the smart money, we can see that there was a specific group of hedgies that slashed their full holdings last quarter. Intriguingly, Daniel S. Och's OZ Management cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, valued at close to $20.6 million in stock, and Joshua Nash's Ulysses Management was right behind this move, as the fund sold off about $9.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Autoliv Inc. (NYSE:ALV). We will take a look at The Macerich Company (NYSE:MAC), Encompass Health Corporation (NYSE:EHC), Aqua America Inc (NYSE:WTR), and WGP Group (NYSE:WGP). All of these stocks' market caps resemble ALV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAC,25,250515,-5 EHC,30,418019,5 WTR,19,172522,6 WGP,7,66283,2 Average,20.25,226835,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $436 million in ALV's case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand WGP Group (NYSE:WGP) is the least popular one with only 7 bullish hedge fund positions. Autoliv Inc. (NYSE:ALV) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately ALV wasn't in this group. Hedge funds that bet on ALV were disappointed as the stock returned 14.4% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

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