Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards The Clorox Company (NYSE:CLX) to find out whether it was one of their high conviction long-term ideas.
The Clorox Company (NYSE:CLX) was in 28 hedge funds’ portfolios at the end of June. CLX investors should pay attention to a decrease in hedge fund interest lately. There were 29 hedge funds in our database with CLX holdings at the end of the previous quarter. Our calculations also showed that CLX isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the fresh hedge fund action regarding The Clorox Company (NYSE:CLX).
Hedge fund activity in The Clorox Company (NYSE:CLX)
Heading into the third quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in CLX a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in The Clorox Company (NYSE:CLX) was held by Cedar Rock Capital, which reported holding $426.4 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $250.3 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Winton Capital Management.
Judging by the fact that The Clorox Company (NYSE:CLX) has faced falling interest from hedge fund managers, it’s safe to say that there is a sect of funds that decided to sell off their entire stakes heading into Q3. Interestingly, Jeffrey Talpins’s Element Capital Management cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $1.2 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks similar to The Clorox Company (NYSE:CLX). We will take a look at Essex Property Trust Inc (NYSE:ESS), Match Group, Inc. (NASDAQ:MTCH), Ameriprise Financial, Inc. (NYSE:AMP), and ORIX Corporation (NYSE:IX). This group of stocks’ market caps are similar to CLX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESS | 19 | 508070 | 3 |
| MTCH | 31 | 787531 | 7 |
| AMP | 39 | 961087 | 5 |
| IX | 6 | 12820 | 0 |
| Average | 23.75 | 567377 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $567 million. That figure was $1012 million in CLX’s case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 6 bullish hedge fund positions. The Clorox Company (NYSE:CLX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CLX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CLX were disappointed as the stock returned -0.2% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
