Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is FedEx Corporation (NYSE:FDX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
FedEx Corporation (NYSE:FDX) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare FDX to other stocks including The Kraft Heinz Company (NASDAQ:KHC), NetEase, Inc (NASDAQ:NTES), and Mizuho Financial Group Inc. (NYSE:MFG) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Mason Hawkins of Southeastern Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to analyze the new hedge fund action encompassing FedEx Corporation (NYSE:FDX).
How have hedgies been trading FedEx Corporation (NYSE:FDX)?
At Q4’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 41 hedge funds held shares or bullish call options in FDX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in FedEx Corporation (NYSE:FDX) was held by Bill & Melinda Gates Foundation Trust, which reported holding $457.4 million worth of stock at the end of September. It was followed by Southeastern Asset Management with a $367.4 million position. Other investors bullish on the company included Citadel Investment Group, ValueAct Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to FedEx Corporation (NYSE:FDX), around 6.12% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, setting aside 3.47 percent of its 13F equity portfolio to FDX.
Seeing as FedEx Corporation (NYSE:FDX) has faced declining sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies who were dropping their positions entirely in the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $27.1 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $26.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as FedEx Corporation (NYSE:FDX) but similarly valued. These stocks are The Kraft Heinz Company (NASDAQ:KHC), NetEase, Inc (NASDAQ:NTES), Mizuho Financial Group Inc. (NYSE:MFG), and Eaton Corporation plc (NYSE:ETN). This group of stocks’ market valuations resemble FDX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KHC | 34 | 10747172 | -5 |
| NTES | 44 | 3818274 | 12 |
| MFG | 5 | 15118 | 1 |
| ETN | 42 | 1224237 | 8 |
| Average | 31.25 | 3951200 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $3951 million. That figure was $1481 million in FDX’s case. NetEase, Inc (NASDAQ:NTES) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks FedEx Corporation (NYSE:FDX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th and still beat the market by 3.1 percentage points. Unfortunately FDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FDX were disappointed as the stock returned -26.2% during the first two months of 2020 (through March 11th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
