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He FTSE 100 has not had a reputation for outstanding returns recently. But recent 13F reports indicate that high-powered hedge funds have been opportunities in the UK.
By itself, this is not a reason to buy (or sell) a stock. But looking at what the smart money has been doing can be a source of ideas worth taking a closer look at.
Ashtead
Dodge & Cox is a value-focused investment operation. And during the third quarter, the company bought about 2.3 million shares of an industrial equipment leasing company. Ashtead (LSE: AHT).
So far, that move has worked very well: Shares are up 7.5% since the end of September. The main reason for this is the result of the US elections.
More than 85% of the company's revenue comes from the other side of the Atlantic. That kind of geographical focus may be a risk, but strong US industrial activity could be a big boost for the FTSE 100 company.
The demand for industrial equipment is very cyclical. And that means I think price-to-book (P/B) is a better metric than price-to-earnings (P/E) when it comes to valuing Ashtead stock.
Ashtead P/B Ratio November 2023 – November 24
Created in TradingView
On this basis, the stock reached its lowest levels of the year between June and August. So even without predicting the election result, it might have seemed like a good time to buy.
The recent rally has seen multiples rise back to the upper end of their 12-month range. That's something investors should consider before deciding whether or not to follow Dodge & Cox.
Lloyds Banking Group
Maverick Capital opened a position in Lloyds Banking Group (LSE:LLOY) during the third quarter. The company has investments in over 200 companies, but there's a reason I think this is interesting.
The stock is currently 4.5% below where it ended the third quarter. This is mainly due to a court ruling against close brothers in the case of car loan fees.
Lloyds has significant exposure in this area, but this is nothing new. What has changed recently is that the risk of significant liabilities has increased as a result of the ruling against Close Brothers.
Unfortunately, investors won't know if Maverick has done anything in response to this until February. That's the limitation of 13F filings: they are only updated quarterly.
That's another reason not to just follow hedge funds in stocks. But I don't think this makes information about what hedge funds have been buying completely worthless.
The fact that the company decided to buy Lloyds instead of, for example, Barclays It's interesting to me. At least it gives me a reason to look closer and see if I can figure out why.
Investment ideas
Many investors use 13F filings to pay attention to what Warren Buffett has been buying. But I think there are many high-powered investors worth paying attention to.
Several of them have seen opportunities in FTSE 100 stocks recently. And while this alone isn't a good enough reason to buy a stock, I don't mind taking a closer look.
