It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Garmin Ltd. (NASDAQ:GRMN) and compare its performance against hedge funds’ favorite stocks.
Is Garmin Ltd. (NASDAQ:GRMN) a safe investment today? Money managers are getting less bullish. The number of bullish hedge fund bets fell by 6 in recent months. Our calculations also showed that GRMN 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). GRMN was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. There were 32 hedge funds in our database with GRMN holdings at the end of the previous quarter.
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital 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. Keeping this in mind let’s go over the new hedge fund action encompassing Garmin Ltd. (NASDAQ:GRMN).
How are hedge funds trading Garmin Ltd. (NASDAQ:GRMN)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GRMN over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in Garmin Ltd. (NASDAQ:GRMN), worth close to $140.4 million, comprising 0.2% of its total 13F portfolio. On AQR Capital Management’s heels is Select Equity Group, managed by Robert Joseph Caruso, which holds a $121.7 million position; 0.8% of its 13F portfolio is allocated to the stock. Other peers that hold long positions consist of David E. Shaw’s D E Shaw, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Garmin Ltd. (NASDAQ:GRMN), around 0.82% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to GRMN.
Because Garmin Ltd. (NASDAQ:GRMN) has faced declining sentiment from the smart money, it’s safe to say that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. Intriguingly, Benjamin A. Smith’s Laurion Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $2.1 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $1.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Garmin Ltd. (NASDAQ:GRMN). We will take a look at Incyte Corporation (NASDAQ:INCY), Principal Financial Group Inc (NYSE:PFG), Invitation Homes Inc. (NYSE:INVH), and Citizens Financial Group Inc (NYSE:CFG). This group of stocks’ market caps resemble GRMN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INCY | 32 | 3214518 | -4 |
| PFG | 19 | 98613 | 2 |
| INVH | 28 | 1096604 | -3 |
| CFG | 38 | 1571462 | -1 |
| Average | 29.25 | 1495299 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1495 million. That figure was $504 million in GRMN’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Principal Financial Group Inc (NYSE:PFG) is the least popular one with only 19 bullish hedge fund positions. Garmin Ltd. (NASDAQ:GRMN) 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 41.3% in 2019 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 GRMN as the stock returned 58.1% in 2019 and outclassed 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.
