“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards 3M Company (NYSE:MMM).
Is 3M Company (NYSE:MMM) a buy here? Money managers are taking a bullish view. The number of long hedge fund positions rose by 7 lately. Our calculations also showed that MMM isn’t among the 30 most popular stocks among hedge funds. MMM was in 43 hedge funds’ portfolios at the end of March. There were 36 hedge funds in our database with MMM holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to review the recent hedge fund action regarding 3M Company (NYSE:MMM).
Hedge fund activity in 3M Company (NYSE:MMM)
Heading into the second quarter of 2019, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the fourth quarter of 2018. On the other hand, there were a total of 37 hedge funds with a bullish position in MMM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of 3M Company (NYSE:MMM), with a stake worth $135.7 million reported as of the end of March. Trailing Citadel Investment Group was AQR Capital Management, which amassed a stake valued at $85.5 million. Renaissance Technologies, Impax Asset Management, and Markel Gayner Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, initiated the biggest position in 3M Company (NYSE:MMM). Renaissance Technologies had $59.7 million invested in the company at the end of the quarter. Ilan Assouline’s Circle Road Advisors also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Ray Dalio’s Bridgewater Associates, David Costen Haley’s HBK Investments, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as 3M Company (NYSE:MMM) but similarly valued. We will take a look at AbbVie Inc (NYSE:ABBV), Broadcom Inc (NASDAQ:AVGO), Union Pacific Corporation (NYSE:UNP), and Amgen, Inc. (NASDAQ:AMGN). This group of stocks’ market valuations are closest to MMM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABBV | 47 | 3858080 | 1 |
| AVGO | 53 | 3326352 | 1 |
| UNP | 54 | 4424562 | -1 |
| AMGN | 46 | 2982796 | 0 |
| Average | 50 | 3647948 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $3648 million. That figure was $441 million in MMM’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Amgen, Inc. (NASDAQ:AMGN) is the least popular one with only 46 bullish hedge fund positions. Compared to these stocks 3M Company (NYSE:MMM) is even less popular than AMGN. Hedge funds dodged a bullet by taking a bearish stance towards MMM. Our calculations showed that the top 15 most popular hedge fund stocks returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MMM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MMM investors were disappointed as the stock returned -22.1% during the same time frame and underperformed 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
