While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Xerox Corporation (NYSE:XRX) and see how the stock performed in comparison to hedge funds’ consensus picks.
Xerox Corporation (NYSE:XRX) was in 32 hedge funds’ portfolios at the end of the third quarter of 2019. XRX has seen an increase in support from the world’s most elite money managers lately. There were 28 hedge funds in our database with XRX holdings at the end of the previous quarter. Our calculations also showed that XRX 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).
According to most investors, hedge funds are viewed as underperforming, old financial vehicles of the past. While there are more than 8000 funds in operation at present, Our researchers look at the masters of this group, around 750 funds. It is estimated that this group of investors command the lion’s share of the hedge fund industry’s total capital, and by keeping track of their highest performing equity investments, Insider Monkey has unearthed various investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR Capital Management
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. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Xerox Corporation (NYSE:XRX).
Hedge fund activity in Xerox Corporation (NYSE:XRX)
Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in XRX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Icahn Capital held the most valuable stake in Xerox Corporation (NYSE:XRX), which was worth $701.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $233.7 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and Falcon Edge Capital 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 Falcon Edge Capital allocated the biggest weight to Xerox Corporation (NYSE:XRX), around 5.06% of its 13F portfolio. Icahn Capital is also relatively very bullish on the stock, setting aside 2.73 percent of its 13F equity portfolio to XRX.
Consequently, some big names have jumped into Xerox Corporation (NYSE:XRX) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the most outsized position in Xerox Corporation (NYSE:XRX). Alyeska Investment Group had $9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $3.1 million investment in the stock during the quarter. The other funds with brand new XRX positions are Matthew Tewksbury’s Stevens Capital Management, Brandon Haley’s Holocene Advisors, and Bruce Kovner’s Caxton Associates.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Xerox Corporation (NYSE:XRX) but similarly valued. These stocks are EQT Midstream Partners LP (NYSE:EQM), Logitech International SA (NASDAQ:LOGI), CAE, Inc. (NYSE:CAE), and SL Green Realty Corp (NYSE:SLG). This group of stocks’ market caps resemble XRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EQM | 11 | 35867 | 3 |
| LOGI | 14 | 213458 | -2 |
| CAE | 11 | 145277 | 1 |
| SLG | 24 | 440534 | 9 |
| Average | 15 | 208784 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $1169 million in XRX’s case. SL Green Realty Corp (NYSE:SLG) is the most popular stock in this table. On the other hand EQT Midstream Partners LP (NYSE:EQM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Xerox Corporation (NYSE:XRX) is more popular among hedge funds. 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 XRX as the stock returned 93.5% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
