It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Lowe’s Companies, Inc. (NYSE:LOW).
Lowe’s Companies, Inc. (NYSE:LOW) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that LOW currently ranks 32nd and isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Ackman of Pershing Square
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the recent hedge fund action regarding Lowe’s Companies, Inc. (NYSE:LOW).
How are hedge funds trading Lowe’s Companies, Inc. (NYSE:LOW)?
Heading into the fourth quarter of 2019, a total of 69 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LOW over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by David E. Shaw, holds the biggest position in Lowe’s Companies, Inc. (NYSE:LOW). D E Shaw has a $1.0242 billion position in the stock, comprising 1.3% of its 13F portfolio. Coming in second is Pershing Square, led by Bill Ackman, holding a $947.1 million position; 15.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism consist of Andreas Halvorsen’s Viking Global, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Lowe’s Companies, Inc. (NYSE:LOW), around 15.11% of its 13F portfolio. Dorsal Capital Management is also relatively very bullish on the stock, setting aside 9.42 percent of its 13F equity portfolio to LOW.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the largest position in Lowe’s Companies, Inc. (NYSE:LOW). Renaissance Technologies had $148.4 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $96 million position during the quarter. The other funds with new positions in the stock are Jeffrey Talpins’s Element Capital Management, Brandon Haley’s Holocene Advisors, and Gregg Moskowitz’s Interval Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Lowe’s Companies, Inc. (NYSE:LOW). We will take a look at British American Tobacco plc (NYSE:BTI), Booking Holdings Inc. (NASDAQ:BKNG), Bristol Myers Squibb Company (NYSE:BMY), and CVS Health Corporation (NYSE:CVS). This group of stocks’ market valuations match LOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BTI | 8 | 374309 | -1 |
| BKNG | 78 | 5427265 | 6 |
| BMY | 56 | 3842079 | -9 |
| CVS | 47 | 924996 | -8 |
| Average | 47.25 | 2642162 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.25 hedge funds with bullish positions and the average amount invested in these stocks was $2642 million. That figure was $5706 million in LOW’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 8 bullish hedge fund positions. Lowe’s Companies, Inc. (NYSE:LOW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on LOW, though not to the same extent, as the stock returned 32% during 2019 (as of 12/23) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
