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 Hewlett Packard Enterprise Company (NYSE:HPE).
Hewlett Packard Enterprise Company (NYSE:HPE) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that HPE 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’ 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 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 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.
Mario Gabelli of GAMCO Investors
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. Let’s take a peek at the key hedge fund action regarding Hewlett Packard Enterprise Company (NYSE:HPE).
What does smart money think about Hewlett Packard Enterprise Company (NYSE:HPE)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HPE over the last 17 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the number one position in Hewlett Packard Enterprise Company (NYSE:HPE). Pzena Investment Management has a $504.3 million position in the stock, comprising 2.7% of its 13F portfolio. The second largest stake is held by Winton Capital Management, led by David Harding, holding a $54.5 million position; 0.6% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism consist of Mario Gabelli’s GAMCO Investors, Ken Griffin’s Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Hewlett Packard Enterprise Company (NYSE:HPE), around 2.74% of its portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 0.83 percent of its 13F equity portfolio to HPE.
Seeing as Hewlett Packard Enterprise Company (NYSE:HPE) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds that elected to cut their full holdings in the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the largest position of the 750 funds watched by Insider Monkey, totaling about $1.5 million in stock. Renaissance Technologies, also cut its stock, about $0.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hewlett Packard Enterprise Company (NYSE:HPE) but similarly valued. We will take a look at Imperial Oil Limited (NYSE:IMO), Palo Alto Networks Inc (NYSE:PANW), Expedia Group, Inc. (NASDAQ:EXPE), and Fifth Third Bancorp (NASDAQ:FITB). This group of stocks’ market caps are closest to HPE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMO | 11 | 42957 | -1 |
| PANW | 47 | 2862155 | 2 |
| EXPE | 33 | 2622304 | 0 |
| FITB | 34 | 1027583 | 5 |
| Average | 31.25 | 1638750 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1639 million. That figure was $822 million in HPE’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 11 bullish hedge fund positions. Hewlett Packard Enterprise Company (NYSE:HPE) 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 HPE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HPE investors were disappointed as the stock returned 4.4% 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.
