Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Arrow Electronics, Inc. (NYSE:ARW).
Arrow Electronics, Inc. (NYSE:ARW) was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. ARW investors should pay attention to an increase in activity from the world’s largest hedge funds of late. There were 24 hedge funds in our database with ARW positions at the end of the previous quarter. Our calculations also showed that ARW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the key hedge fund action encompassing Arrow Electronics, Inc. (NYSE:ARW).
What does smart money think about Arrow Electronics, Inc. (NYSE:ARW)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the third quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in ARW a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Arrow Electronics, Inc. (NYSE:ARW), with a stake worth $264.1 million reported as of the end of September. Trailing AQR Capital Management was Lyrical Asset Management, which amassed a stake valued at $170.6 million. Citadel Investment Group, Pzena Investment Management, and Woodline Partners 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 Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.32% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, designating 0.96 percent of its 13F equity portfolio to ARW.
Consequently, some big names have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and Karl Kroeker, established the most valuable position in Arrow Electronics, Inc. (NYSE:ARW). Woodline Partners had $23.6 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $5.8 million investment in the stock during the quarter. The following funds were also among the new ARW investors: D. E. Shaw’s D E Shaw, Anand Parekh’s Alyeska Investment Group, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Arrow Electronics, Inc. (NYSE:ARW) but similarly valued. We will take a look at Dolby Laboratories, Inc. (NYSE:DLB), Watsco Inc (NYSE:WSO), argenx SE (NASDAQ:ARGX), and Elbit Systems Ltd. (NASDAQ:ESLT). All of these stocks’ market caps are similar to ARW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DLB | 31 | 511426 | 3 |
| WSO | 23 | 191625 | 1 |
| ARGX | 26 | 788285 | 0 |
| ESLT | 3 | 12089 | 0 |
| Average | 20.75 | 375856 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $680 million in ARW’s case. Dolby Laboratories, Inc. (NYSE:DLB) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Arrow Electronics, Inc. (NYSE:ARW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately ARW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ARW were disappointed as the stock returned -41.3% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
