Hedge Funds Are Warming Up To Koninklijke Philips NV (PHG)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Koninklijke Philips NV (NYSE:PHG) and determine whether the smart money was really smart about this stock.

Koninklijke Philips NV (NYSE:PHG) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that PHG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 58 percentage points since March 2017 (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 stocks that are in our short portfolio.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the new hedge fund action surrounding Koninklijke Philips NV (NYSE:PHG).

How are hedge funds trading Koninklijke Philips NV (NYSE:PHG)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in PHG 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.

The largest stake in Koninklijke Philips NV (NYSE:PHG) was held by Arrowstreet Capital, which reported holding $72.8 million worth of stock at the end of September. It was followed by Galibier Capital Management with a $14.7 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Koninklijke Philips NV (NYSE:PHG), around 6.41% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, setting aside 3.99 percent of its 13F equity portfolio to PHG.

As aggregate interest increased, key money managers have been driving this bullishness. Renaissance Technologies, created the largest position in Koninklijke Philips NV (NYSE:PHG). Renaissance Technologies had $11 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.5 million investment in the stock during the quarter. The other funds with brand new PHG positions are Dmitry Balyasny’s Balyasny Asset Management and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Koninklijke Philips NV (NYSE:PHG) but similarly valued. We will take a look at Westpac Banking Corporation (NYSE:WBK), Sprint Corporation (NYSE:S), Lam Research Corporation (NASDAQ:LRCX), and Centene Corporation (NYSE:CNC). All of these stocks’ market caps are similar to PHG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1696 million. That figure was $139 million in PHG’s case. Centene Corporation (NYSE:CNC) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 9 bullish hedge fund positions. Koninklijke Philips NV (NYSE:PHG) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately PHG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PHG investors were disappointed as the stock returned 19.2% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.