It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Sonoco Products Company (NYSE:SON).
Sonoco Products Company (NYSE:SON) was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. SON investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 19 hedge funds in our database with SON holdings at the end of the previous quarter. Our calculations also showed that SON isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the recent hedge fund action surrounding Sonoco Products Company (NYSE:SON).
How are hedge funds trading Sonoco Products Company (NYSE:SON)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in SON a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Sonoco Products Company (NYSE:SON), with a stake worth $26.3 million reported as of the end of September. Trailing Impax Asset Management was AQR Capital Management, which amassed a stake valued at $23.5 million. Citadel Investment Group, Royce & Associates, and GAMCO Investors 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 Navellier & Associates allocated the biggest weight to Sonoco Products Company (NYSE:SON), around 0.4% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to SON.
Now, some big names have jumped into Sonoco Products Company (NYSE:SON) headfirst. Paloma Partners, managed by Donald Sussman, created the most outsized position in Sonoco Products Company (NYSE:SON). Paloma Partners had $0.6 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates also made a $0.5 million investment in the stock during the quarter. The other funds with brand new SON positions are Alec Litowitz and Ross Laser’s Magnetar Capital, Ray Dalio’s Bridgewater Associates, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sonoco Products Company (NYSE:SON) but similarly valued. These stocks are CDK Global Inc (NASDAQ:CDK), Enel Chile S.A. (NYSE:ENIC), Wix.Com Ltd (NASDAQ:WIX), and Versum Materials, Inc. (NYSE:VSM). This group of stocks’ market valuations resemble SON’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDK | 28 | 473046 | -1 |
| ENIC | 8 | 26016 | 2 |
| WIX | 31 | 986992 | 5 |
| VSM | 31 | 1007124 | -5 |
| Average | 24.5 | 623295 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $623 million. That figure was $117 million in SON’s case. Wix.Com Ltd (NASDAQ:WIX) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 8 bullish hedge fund positions. Sonoco Products Company (NYSE:SON) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SON wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SON investors were disappointed as the stock returned 4.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
