Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Macy’s, Inc. (NYSE:M) based on that data.
Macy’s, Inc. (NYSE:M) has experienced a decrease in enthusiasm from smart money recently. M was in 28 hedge funds’ portfolios at the end of the third quarter of 2019. There were 31 hedge funds in our database with M holdings at the end of the previous quarter. Our calculations also showed that M 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).
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Philippe Laffont of Coatue 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 let’s go over the fresh hedge fund action regarding Macy’s, Inc. (NYSE:M).
Hedge fund activity in Macy’s, Inc. (NYSE:M)
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards M over the last 17 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Donald Yacktman’s Yacktman Asset Management has the number one position in Macy’s, Inc. (NYSE:M), worth close to $369.3 million, accounting for 4.5% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $75.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Ray Dalio’s Bridgewater Associates, Israel Englander’s Millennium Management and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Yacktman Asset Management allocated the biggest weight to Macy’s, Inc. (NYSE:M), around 4.54% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, earmarking 4.01 percent of its 13F equity portfolio to M.
Judging by the fact that Macy’s, Inc. (NYSE:M) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of money managers who sold off their entire stakes last quarter. At the top of the heap, Steven Tananbaum’s GoldenTree Asset Management cut the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $17.4 million in stock, and Lee Ainslie’s Maverick Capital was right behind this move, as the fund cut about $16.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Macy’s, Inc. (NYSE:M). These stocks are Western Alliance Bancorporation (NYSE:WAL), Shell Midstream Partners LP (NYSE:SHLX), PLDT Inc. (NYSE:PHI), and Grand Canyon Education Inc (NASDAQ:LOPE). This group of stocks’ market valuations match M’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAL | 25 | 254686 | -2 |
| SHLX | 6 | 12026 | 1 |
| PHI | 5 | 71651 | 0 |
| LOPE | 23 | 107964 | 0 |
| Average | 14.75 | 111582 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $652 million in M’s case. Western Alliance Bancorporation (NYSE:WAL) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Macy’s, Inc. (NYSE:M) is more popular among hedge funds. 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. Unfortunately M wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on M were disappointed as the stock returned -41.1% so far in 2019 (through 12/23) 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 65 percent of these stocks already outperformed the market in 2019.
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.
