Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Jabil Inc. (NYSE:JBL).
Jabil Inc. (NYSE:JBL) has seen an increase in hedge fund interest in recent months. JBL was in 30 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with JBL positions at the end of the previous quarter. Our calculations also showed that JBL 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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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. With all of this in mind let’s check out the key hedge fund action surrounding Jabil Inc. (NYSE:JBL).
How are hedge funds trading Jabil Inc. (NYSE:JBL)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the second quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in JBL a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in Jabil Inc. (NYSE:JBL). AQR Capital Management has a $158.8 million position in the stock, comprising 0.2% of its 13F portfolio. On AQR Capital Management’s heels is Ken Griffin of Citadel Investment Group, with a $42.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions comprise Israel Englander’s Millennium Management, Phill Gross and Robert Atchinson’s Adage Capital Management . In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Jabil Inc. (NYSE:JBL), around 0.55% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to JBL.
As aggregate interest increased, key hedge funds have jumped into Jabil Inc. (NYSE:JBL) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Jabil Inc. (NYSE:JBL). Arrowstreet Capital had $27.6 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Paul Marshall and Ian Wace’s Marshall Wace, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s check out hedge fund activity in other stocks similar to Jabil Inc. (NYSE:JBL). These stocks are BWX Technologies Inc (NYSE:BWXT), Ingredion Inc (NYSE:INGR), Cloudflare, Inc. (NYSE:NET), and Suzano S.A. (NYSE:SUZ). This group of stocks’ market caps are similar to JBL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BWXT | 21 | 58972 | 2 |
| INGR | 27 | 343195 | 6 |
| NET | 33 | 144754 | 33 |
| SUZ | 4 | 36039 | 2 |
| Average | 21.25 | 145740 | 10.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $438 million in JBL’s case. Cloudflare, Inc. (NYSE:NET) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 4 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) 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 JBL as the stock returned 69.6% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
