There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze VMware, Inc. (NYSE:VMW).
VMware, Inc. (NYSE:VMW) was in 34 hedge funds’ portfolios at the end of the second quarter of 2019. VMW shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 32 hedge funds in our database with VMW positions at the end of the previous quarter. Our calculations also showed that VMW isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the new hedge fund action regarding VMware, Inc. (NYSE:VMW).
How have hedgies been trading VMware, Inc. (NYSE:VMW)?
At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VMW over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in VMware, Inc. (NYSE:VMW) was held by Renaissance Technologies, which reported holding $643.8 million worth of stock at the end of March. It was followed by AQR Capital Management with a $214.8 million position. Other investors bullish on the company included Two Sigma Advisors, Jericho Capital Asset Management, and D E Shaw.
As aggregate interest increased, some big names have jumped into VMware, Inc. (NYSE:VMW) headfirst. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in VMware, Inc. (NYSE:VMW). Laurion Capital Management had $23.9 million invested in the company at the end of the quarter. Louis Navellier’s Navellier & Associates also initiated a $5.6 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Ken Fisher’s Fisher Asset Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as VMware, Inc. (NYSE:VMW) but similarly valued. These stocks are Intuit Inc. (NASDAQ:INTU), Becton, Dickinson and Company (NYSE:BDX), Vale SA (NYSE:VALE), and Canadian National Railway Company (NYSE:CNI). All of these stocks’ market caps are closest to VMW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INTU | 46 | 2203004 | 4 |
| BDX | 40 | 1254476 | 5 |
| VALE | 21 | 1848374 | -1 |
| CNI | 28 | 2303561 | 11 |
| Average | 33.75 | 1902354 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1902 million. That figure was $1325 million in VMW’s case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 21 bullish hedge fund positions. VMware, Inc. (NYSE:VMW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VMW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VMW were disappointed as the stock returned -10.3% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
