During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Office Depot Inc (NASDAQ:ODP) and see how the stock is affected by the recent hedge fund activity.
Office Depot Inc (NASDAQ:ODP) has seen an increase in hedge fund sentiment lately. ODP was in 24 hedge funds’ portfolios at the end of December. There were 20 hedge funds in our database with ODP positions at the end of the previous quarter. Our calculations also showed that ODP isn’t among the 30 most popular stocks among hedge funds.
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’ 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 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to analyze the new hedge fund action encompassing Office Depot Inc (NASDAQ:ODP).
What does the smart money think about Office Depot Inc (NASDAQ:ODP)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ODP over the last 14 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.
More specifically, Millennium Management was the largest shareholder of Office Depot Inc (NASDAQ:ODP), with a stake worth $13.1 million reported as of the end of December. Trailing Millennium Management was Paulson & Co, which amassed a stake valued at $12.9 million. Winton Capital Management, Arrowstreet Capital, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Winton Capital Management, managed by David Harding, created the most outsized position in Office Depot Inc (NASDAQ:ODP). Winton Capital Management had $9.4 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $3.8 million position during the quarter. The following funds were also among the new ODP investors: Paul Tudor Jones’s Tudor Investment Corp, Ed Bosek’s BeaconLight Capital, and David Costen Haley’s HBK Investments.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Office Depot Inc (NASDAQ:ODP) but similarly valued. We will take a look at Compass Minerals International, Inc. (NYSE:CMP), STAAR Surgical Company (NASDAQ:STAA), Alamos Gold Inc (NYSE:AGI), and Adient plc (NYSE:ADNT). This group of stocks’ market values match ODP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMP | 12 | 96774 | 1 |
| STAA | 20 | 598030 | -4 |
| AGI | 11 | 71999 | 1 |
| ADNT | 27 | 287226 | -2 |
| Average | 17.5 | 263507 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $83 million in ODP’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Alamos Gold Inc (NYSE:AGI) is the least popular one with only 11 bullish hedge fund positions. Office Depot Inc (NASDAQ:ODP) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ODP wasn’t nearly as popular as these 15 stock and hedge funds that were betting on ODP were disappointed as the stock returned -7.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
