Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is AutoZone, Inc. (NYSE:AZO) an exceptional investment right now? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions dropped by 2 in recent months. Our calculations also showed that AZO isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the key hedge fund action encompassing AutoZone, Inc. (NYSE:AZO).
What does the smart money think about AutoZone, Inc. (NYSE:AZO)?
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AZO over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in AutoZone, Inc. (NYSE:AZO). Citadel Investment Group has a $254.6 million call position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $250.5 million position; 0.6% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish consist of Cliff Asness’s AQR Capital Management, Jim Simons’s Renaissance Technologies and Clint Carlson’s Carlson Capital.
Since AutoZone, Inc. (NYSE:AZO) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest investment of the 700 funds followed by Insider Monkey, worth close to $62.3 million in stock. Gregg Moskowitz’s fund, Interval Partners, also cut its stock, about $55 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AutoZone, Inc. (NYSE:AZO) but similarly valued. We will take a look at AmerisourceBergen Corporation (NYSE:ABC), Arista Networks Inc (NYSE:ANET), Harris Corporation (NYSE:HRS), and Marathon Oil Corporation (NYSE:MRO). This group of stocks’ market values are similar to AZO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABC | 32 | 608745 | -4 |
| ANET | 22 | 574815 | 0 |
| HRS | 27 | 530950 | 2 |
| MRO | 39 | 1584494 | 1 |
| Average | 30 | 824751 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $825 million. That figure was $920 million in AZO’s case. Marathon Oil Corporation (NYSE:MRO) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 22 bullish hedge fund positions. AutoZone, Inc. (NYSE:AZO) 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. In this regard MRO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
