How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Sherwin-Williams Company (NYSE:SHW).
The Sherwin-Williams Company (NYSE:SHW) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. The Sherwin-Williams Company (NYSE:SHW) was in 49 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 57. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Michael Gelband of ExodusPoint Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the key hedge fund action encompassing The Sherwin-Williams Company (NYSE:SHW).
Do Hedge Funds Think SHW Is A Good Stock To Buy Now?
At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in SHW a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chilton Investment Company, managed by Richard Chilton, holds the number one position in The Sherwin-Williams Company (NYSE:SHW). Chilton Investment Company has a $319.8 million position in the stock, comprising 8% of its 13F portfolio. The second largest stake is held by Farallon Capital, holding a $284.8 million position; 1.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish consist of Ric Dillon’s Diamond Hill Capital, Panayotis Takis Sparaggis’s Alkeon Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 8.04% of its 13F portfolio. Bluegrass Capital Partners is also relatively very bullish on the stock, designating 6.04 percent of its 13F equity portfolio to SHW.
Judging by the fact that The Sherwin-Williams Company (NYSE:SHW) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedge funds that decided to sell off their full holdings by the end of the second quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors sold off the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $144.5 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $97.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to The Sherwin-Williams Company (NYSE:SHW). These stocks are Coupang, Inc. (NYSE:CPNG), Equinix, Inc. (REIT) (NASDAQ:EQIX), Snowflake Inc (NYSE:SNOW), Marsh & McLennan Companies, Inc. (NYSE:MMC), Chubb Limited (NYSE:CB), Baidu, Inc. (NASDAQ:BIDU), and Westpac Banking Corporation (NYSE:WBK). This group of stocks’ market caps are closest to SHW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPNG | 33 | 18042813 | -7 |
| EQIX | 33 | 1266516 | -8 |
| SNOW | 70 | 12507692 | -1 |
| MMC | 41 | 2537494 | 4 |
| CB | 42 | 1737776 | 1 |
| BIDU | 59 | 3474215 | -30 |
| WBK | 4 | 38055 | 1 |
| Average | 40.3 | 5657794 | -5.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $5658 million. That figure was $2029 million in SHW’s case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. The Sherwin-Williams Company (NYSE:SHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHW is 62.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on SHW as the stock returned 4.8% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
