We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in FedEx Corporation (NYSE:FDX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as National Grid plc (NYSE:NGG), Dell Technologies Inc. (NYSE:DELL), and Pinduoduo Inc. (NASDAQ:PDD) to gather more data points. Our calculations also showed that FDX 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).
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’ 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.
Mason Hawkins of Southeastern Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Now we’re going to view the latest hedge fund action surrounding FedEx Corporation (NYSE:FDX).
How have hedgies been trading FedEx Corporation (NYSE:FDX)?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 42 hedge funds with a bullish position in FDX a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in FedEx Corporation (NYSE:FDX), which was worth $440.3 million at the end of the third quarter. On the second spot was Southeastern Asset Management which amassed $369.9 million worth of shares. Greenhaven Associates, Millennium Management, and Lakewood Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to FedEx Corporation (NYSE:FDX), around 6.45% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, setting aside 3.33 percent of its 13F equity portfolio to FDX.
Due to the fact that FedEx Corporation (NYSE:FDX) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who were dropping their entire stakes in the third quarter. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management cut the biggest investment of the 750 funds watched by Insider Monkey, comprising about $82.1 million in call options, and Mike Masters’s Masters Capital Management was right behind this move, as the fund sold off about $82.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FedEx Corporation (NYSE:FDX) but similarly valued. These stocks are National Grid plc (NYSE:NGG), Dell Technologies Inc. (NYSE:DELL), Pinduoduo Inc. (NASDAQ:PDD), and Delta Air Lines, Inc. (NYSE:DAL). This group of stocks’ market caps are similar to FDX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGG | 10 | 534812 | 2 |
| DELL | 45 | 2444313 | 5 |
| PDD | 30 | 1435122 | 1 |
| DAL | 65 | 6996617 | -5 |
| Average | 37.5 | 2852716 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $2853 million. That figure was $1369 million in FDX’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 10 bullish hedge fund positions. FedEx Corporation (NYSE:FDX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately FDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FDX were disappointed as the stock returned -4.8% in 2019 and trailed 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.
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.
