Did Hedge Funds Make The Right Call On Best Buy Co., Inc. (BBY) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Best Buy Co., Inc. (NYSE:BBY) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Best Buy Co., Inc. (NYSE:BBY) going to take off soon? Money managers were in an optimistic mood. The number of long hedge fund positions increased by 12 lately. Our calculations also showed that BBY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most stock holders, hedge funds are perceived as unimportant, old financial vehicles of the past. While there are more than 8000 funds trading at the moment, We choose to focus on the elite of this group, around 850 funds. It is estimated that this group of investors shepherd the lion’s share of the smart money’s total asset base, and by observing their matchless investments, Insider Monkey has discovered many investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing Best Buy Co., Inc. (NYSE:BBY).

How have hedgies been trading Best Buy Co., Inc. (NYSE:BBY)?

Heading into the second quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 48% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BBY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, AQR Capital Management held the most valuable stake in Best Buy Co., Inc. (NYSE:BBY), which was worth $230.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $116.3 million worth of shares. Alyeska Investment Group, Two Sigma Advisors, and Balyasny Asset Management 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 L2 Asset Management allocated the biggest weight to Best Buy Co., Inc. (NYSE:BBY), around 1.65% of its 13F portfolio. Six Columns Capital is also relatively very bullish on the stock, designating 1.5 percent of its 13F equity portfolio to BBY.

Now, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Best Buy Co., Inc. (NYSE:BBY). Balyasny Asset Management had $37.6 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also initiated a $10 million position during the quarter. The other funds with brand new BBY positions are Lee Ainslie’s Maverick Capital, Greg Eisner’s Engineers Gate Manager, and Brad Stephens’s Six Columns Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Best Buy Co., Inc. (NYSE:BBY) but similarly valued. We will take a look at Essex Property Trust Inc (NYSE:ESS), Fiat Chrysler Automobiles NV (NYSE:FCAU), Equifax Inc. (NYSE:EFX), and Fox Corporation (NASDAQ:FOXA). All of these stocks’ market caps match BBY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $907 million. That figure was $634 million in BBY’s case. Fox Corporation (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 25 bullish hedge fund positions. Best Buy Co., Inc. (NYSE:BBY) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on BBY as the stock returned 54.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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