Hedge Funds Have Never Been Less Bullish On Broadcom Inc (AVGO)

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 have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Broadcom Inc (NASDAQ:AVGO) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Broadcom Inc (NASDAQ:AVGO) investors should pay attention to a decrease in support from the world’s most elite money managers of late. Broadcom Inc (NASDAQ:AVGO) was in 47 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 83. There were 53 hedge funds in our database with AVGO holdings at the end of March. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click 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 S&P 500 ETFs by 79 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.

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 we’re going to review the fresh hedge fund action surrounding Broadcom Inc (NASDAQ:AVGO).

Do Hedge Funds Think AVGO Is A Good Stock To Buy Now?

At Q2’s end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AVGO over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Cantillon Capital Management was the largest shareholder of Broadcom Inc (NASDAQ:AVGO), with a stake worth $524.1 million reported as of the end of June. Trailing Cantillon Capital Management was First Pacific Advisors LLC, which amassed a stake valued at $427.6 million. Farallon Capital, Lyrical Asset Management, and Citadel Investment Group 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 First Pacific Advisors LLC allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 5.36% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, earmarking 4.44 percent of its 13F equity portfolio to AVGO.

Judging by the fact that Broadcom Inc (NASDAQ:AVGO) has experienced falling interest from hedge fund managers, we can see that there is a sect of funds that decided to sell off their positions entirely heading into Q3. Interestingly, Glen Kacher’s Light Street Capital sold off the biggest position of the 750 funds watched by Insider Monkey, comprising close to $62.1 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund said goodbye to about $33.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 6 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Broadcom Inc (NASDAQ:AVGO). We will take a look at Novo Nordisk A/S (NYSE:NVO), Danaher Corporation (NYSE:DHR), Wells Fargo & Company (NYSE:WFC), Accenture Plc (NYSE:ACN), BHP Group (NYSE:BHP), Shopify Inc (NYSE:SHOP), and United Parcel Service, Inc. (NYSE:UPS). This group of stocks’ market valuations are similar to AVGO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $5305 million. That figure was $3031 million in AVGO’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVGO is 35.1. 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. A small number of hedge funds were also right about betting on AVGO as the stock returned 3% since the end of the second quarter (through 10/1) and outperformed the market by an even larger margin.

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