We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded 0 based on those filings.
Is 0 a first-rate stock to buy now? Money managers are in an optimistic mood. The number of bullish hedge fund positions improved by 6 in recent months. Our calculations also showed that J isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 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 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.
James Dinan of York Capital 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. Now we’re going to take a look at the new hedge fund action encompassing 0.
What have hedge funds been doing with Jacobs Engineering Group Inc. (NYSE:J)?
At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in J 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.
Among these funds, Select Equity Group held the most valuable stake in Jacobs Engineering Group Inc. (NYSE:J), which was worth $527.3 million at the end of the third quarter. On the second spot was Suvretta Capital Management which amassed $88.2 million worth of shares. Scopus Asset Management, Two Sigma Advisors, and Samlyn Capital 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 Lodge Hill Capital allocated the biggest weight to Jacobs Engineering Group Inc. (NYSE:J), around 8.81% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, setting aside 5.72 percent of its 13F equity portfolio to J.
As aggregate interest increased, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Jacobs Engineering Group Inc. (NYSE:J). Balyasny Asset Management had $38.1 million invested in the company at the end of the quarter. James Dinan’s York Capital Management also initiated a $18.8 million position during the quarter. The other funds with brand new J positions are Sahm Adrangi’s Kerrisdale Capital, Matthew Tewksbury’s Stevens Capital Management, and Israel Englander’s Millennium Management.
Let’s check out hedge fund activity in other stocks similar to Jacobs Engineering Group Inc. (NYSE:J). We will take a look at Open Text Corporation (NASDAQ:OTEX), Noble Energy, Inc. (NASDAQ:NBL), The J.M. Smucker Company (NYSE:SJM), and ASE Technology Holding Co., Ltd. (NYSE:ASX). All of these stocks’ market caps resemble J’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OTEX | 14 | 518546 | -1 |
| NBL | 28 | 488251 | -1 |
| SJM | 31 | 450185 | 3 |
| ASX | 10 | 231824 | 2 |
| Average | 20.75 | 422202 | 0.75 |
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 $422 million. That figure was $1066 million in J’s case. The J.M. Smucker Company (NYSE:SJM) is the most popular stock in this table. On the other hand ASE Technology Holding Co., Ltd. (NYSE:ASX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Jacobs Engineering Group Inc. (NYSE:J) 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 but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on J as the stock returned -12% so far in Q1 (through March 16th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.