Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Accenture Plc (NYSE:ACN) and compare its performance to hedge funds’ consensus picks in 2019.
Accenture Plc (NYSE:ACN) shareholders have witnessed an increase in hedge fund sentiment of late. ACN was in 42 hedge funds’ portfolios at the end of the third quarter of 2019. There were 38 hedge funds in our database with ACN holdings at the end of the previous quarter. Our calculations also showed that ACN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to go over the key hedge fund action regarding Accenture Plc (NYSE:ACN).
What does smart money think about Accenture Plc (NYSE:ACN)?
Heading into the fourth quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACN over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Accenture Plc (NYSE:ACN) was held by AQR Capital Management, which reported holding $294.2 million worth of stock at the end of September. It was followed by Adage Capital Management with a $148.7 million position. Other investors bullish on the company included Praesidium Investment Management, Two Sigma Advisors, and Intermede Investment Partners. In terms of the portfolio weights assigned to each position Praesidium Investment Management allocated the biggest weight to Accenture Plc (NYSE:ACN), around 8.17% of its 13F portfolio. Intermede Investment Partners is also relatively very bullish on the stock, dishing out 3.56 percent of its 13F equity portfolio to ACN.
As one would reasonably expect, key hedge funds have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the most outsized position in Accenture Plc (NYSE:ACN). Laurion Capital Management had $23.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $18.6 million position during the quarter. The following funds were also among the new ACN investors: Karim Abbadi and Edward McBride’s Centiva Capital, Ronald Hua’s Qtron Investments, and Richard Chilton’s Chilton Investment Company.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Accenture Plc (NYSE:ACN) but similarly valued. These stocks are Novo Nordisk A/S (NYSE:NVO), Paypal Holdings Inc (NASDAQ:PYPL), Honeywell International Inc. (NYSE:HON), and Texas Instruments Incorporated (NASDAQ:TXN). This group of stocks’ market caps are similar to ACN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVO | 21 | 3007327 | 4 |
| PYPL | 95 | 4135931 | 0 |
| HON | 53 | 1926350 | -3 |
| TXN | 52 | 2578705 | 9 |
| Average | 55.25 | 2912078 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.25 hedge funds with bullish positions and the average amount invested in these stocks was $2912 million. That figure was $1121 million in ACN’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 21 bullish hedge fund positions. Accenture Plc (NYSE:ACN) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on ACN as the stock returned 51.4% in 2019 through December 23rd and outperformed the market by an even larger margin.
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.
