Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Starbucks Corporation (NASDAQ:SBUX) to find out whether it was one of their high conviction long-term ideas.
Starbucks Corporation (NASDAQ:SBUX) was in 47 hedge funds’ portfolios at the end of March. SBUX shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. There were 42 hedge funds in our database with SBUX positions at the end of the previous quarter. Our calculations also showed that sbux isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to view the recent hedge fund action regarding Starbucks Corporation (NASDAQ:SBUX).
Hedge fund activity in Starbucks Corporation (NASDAQ:SBUX)
At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the fourth quarter of 2018. By comparison, 40 hedge funds held shares or bullish call options in SBUX a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Starbucks Corporation (NASDAQ:SBUX), with a stake worth $823.2 million reported as of the end of March. Trailing Renaissance Technologies was Pershing Square, which amassed a stake valued at $743 million. Cedar Rock Capital, Two Sigma Advisors, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds were breaking ground themselves. Columbus Circle Investors, managed by Principal Global Investors, initiated the most outsized position in Starbucks Corporation (NASDAQ:SBUX). Columbus Circle Investors had $36 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $18.7 million position during the quarter. The other funds with brand new SBUX positions are David Costen Haley’s HBK Investments, Bruce Kovner’s Caxton Associates LP, and Sander Gerber’s Hudson Bay Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Starbucks Corporation (NASDAQ:SBUX) but similarly valued. We will take a look at NextEra Energy, Inc. (NYSE:NEE), American Express Company (NYSE:AXP), Lowe’s Companies, Inc. (NYSE:LOW), and General Electric Company (NYSE:GE). All of these stocks’ market caps match SBUX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NEE | 36 | 857567 | -1 |
| AXP | 57 | 19790830 | 7 |
| LOW | 56 | 5256913 | 3 |
| GE | 54 | 3675745 | -5 |
| Average | 50.75 | 7395264 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.75 hedge funds with bullish positions and the average amount invested in these stocks was $7395 million. That figure was $4588 million in SBUX’s case. American Express Company (NYSE:AXP) is the most popular stock in this table. On the other hand NextEra Energy, Inc. (NYSE:NEE) is the least popular one with only 36 bullish hedge fund positions. Starbucks Corporation (NASDAQ:SBUX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on SBUX as the stock returned 2.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
