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 VMware, Inc. (NYSE:VMW) and compare its performance against hedge funds’ favorite stocks.
VMware, Inc. (NYSE:VMW) has seen an increase in support from the world’s most elite money managers lately. VMW was in 35 hedge funds’ portfolios at the end of the third quarter of 2019. There were 34 hedge funds in our database with VMW holdings at the end of the previous quarter. Our calculations also showed that VMW 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).
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.
Jim Simons of Renaissance Technologies
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. With all of this in mind let’s go over the fresh hedge fund action encompassing VMware, Inc. (NYSE:VMW).
How have hedgies been trading VMware, Inc. (NYSE:VMW)?
Heading into the fourth quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2019. On the other hand, there were a total of 38 hedge funds with a bullish position in VMW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of VMware, Inc. (NYSE:VMW), with a stake worth $475.3 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $126.2 million. Two Sigma Advisors, Alyeska Investment Group, and Marshall Wace 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 Mondrian Capital allocated the biggest weight to VMware, Inc. (NYSE:VMW), around 3.26% of its 13F portfolio. Lunia Capital is also relatively very bullish on the stock, designating 2.71 percent of its 13F equity portfolio to VMW.
As aggregate interest increased, key money managers have jumped into VMware, Inc. (NYSE:VMW) headfirst. Alyeska Investment Group, managed by Anand Parekh, initiated the biggest position in VMware, Inc. (NYSE:VMW). Alyeska Investment Group had $70.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $25.1 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Vikas Lunia’s Lunia Capital, and Parsa Kiai’s Steamboat Capital Partners.
Let’s check out hedge fund activity in other stocks similar to VMware, Inc. (NYSE:VMW). These stocks are S&P Global Inc. (NYSE:SPGI), Zoetis Inc (NYSE:ZTS), Vale SA (NYSE:VALE), and The Blackstone Group L.P. (NYSE:BX). This group of stocks’ market valuations match VMW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPGI | 69 | 3925199 | 11 |
| ZTS | 46 | 2229489 | 6 |
| VALE | 28 | 1453835 | 7 |
| BX | 41 | 1571733 | 11 |
| Average | 46 | 2295064 | 8.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $2295 million. That figure was $985 million in VMW’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 28 bullish hedge fund positions. VMware, Inc. (NYSE:VMW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately VMW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VMW investors were disappointed as the stock returned 11.3% in 2019 (as of 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.
