Do Hedge Funds Love Cisco Systems, Inc. (CSCO)?

After a lengthy stretch of outperformance, small-cap stocks suffered from July 2015 through June 2016, as heightened global economic fears led investors to flee to the safe havens of large-cap stocks and other instruments. Those stocks outperformed small-caps by about 10 percentage points during that time, with small-cap healthcare stocks being particularly hard hit. However, the tide has since turned in a big way, as evidenced by small-caps toppling their large-cap peers by 6 percentage points in the third quarter, and by another 4 percentage points in the first seven weeks of the fourth quarter. In this article, we’ll analyze how this shift affected hedge funds’ third-quarter trading of Cisco Systems, Inc. (NASDAQ:CSCO) and see how the stock is affected by the recent hedge fund activity.

Overall, Cisco Systems, Inc. (NASDAQ:CSCO) shareholders have witnessed an increase in hedge fund sentiment in recent months, but the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Unilever N.V. (ADR) (NYSE:UN), Novo Nordisk A/S (ADR) (NYSE:NVO), and Bank of America Corp (NYSE:BAC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

photostock77 / Shutterstock.com

Keeping this in mind, we’re going to check out the recent action surrounding Cisco Systems, Inc. (NASDAQ:CSCO).

How are hedge funds trading Cisco Systems, Inc. (NASDAQ:CSCO)?

At the end of September, 66 funds tracked by Insider Monkey were long this stock, up by 8% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Donald Yacktman’s Yacktman Asset Management has the number one position in Cisco Systems, Inc. (NASDAQ:CSCO), worth close to $815.2 million, accounting for 7.1% of its total 13F portfolio. On Yacktman Asset Management’s heels is First Pacific Advisors LLC, led by Robert Rodriguez and Steven Romick, holding a $531.2 million position; 4.4% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Ken Fisher’s Fisher Asset Management, Cliff Asness’ AQR Capital Management and Ric Dillon’s Diamond Hill Capital.

As industrywide interest jumped, key money managers have jumped into Cisco Systems, Inc. (NASDAQ:CSCO) headfirst. Alyeska Investment Group, managed by Anand Parekh, assembled the biggest position in Cisco Systems, Inc. (NASDAQ:CSCO). Alyeska Investment Group had $83.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $77.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Curtis Macnguyen’s Ivory Capital (Investment Mgmt), Paul Marshall and Ian Wace’s Marshall Wace LLP, and Philip Hempleman’s Ardsley Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cisco Systems, Inc. (NASDAQ:CSCO) but similarly valued. These stocks are Unilever N.V. (ADR) (NYSE:UN), Novo Nordisk A/S (ADR) (NYSE:NVO), Bank of America Corp (NYSE:BAC), and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM). This group of stocks’ market values resemble CSCO’s market value.

As you can see these stocks had an average of 42 funds holding shares at the end of September and the average amount invested in these stocks was $3.04 billion. That figure was $4.63 billion in Cisco’s case. Bank of America Corp (NYSE:BAC) is the most popular stock in this table. On the other hand Unilever N.V. (ADR) (NYSE:UN) is the least popular one with only 11 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Bank of America might be a better candidate to consider a long position.