While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Booz Allen Hamilton Holding Corporation (NYSE:BAH).
Hedge fund interest in Booz Allen Hamilton Holding Corporation (NYSE:BAH) 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 Kimco Realty Corp (NYSE:KIM), Commerce Bancshares, Inc. (NASDAQ:CBSH), and National Retail Properties, Inc. (NYSE:NNN) to gather more data points.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a glance at the latest hedge fund action regarding Booz Allen Hamilton Holding Corporation (NYSE:BAH).
What have hedge funds been doing with Booz Allen Hamilton Holding Corporation (NYSE:BAH)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, no change from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BAH over the last 13 quarters. 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, Polar Capital was the largest shareholder of Booz Allen Hamilton Holding Corporation (NYSE:BAH), with a stake worth $77.8 million reported as of the end of September. Trailing Polar Capital was AQR Capital Management, which amassed a stake valued at $63.9 million. Adage Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Booz Allen Hamilton Holding Corporation (NYSE:BAH) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of fund managers that elected to cut their positions entirely last quarter. Intriguingly, David Charney and Sky Wilber’s Foundation Asset Management dumped the largest investment of all the hedgies monitored by Insider Monkey, totaling close to $12.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $7.4 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Booz Allen Hamilton Holding Corporation (NYSE:BAH). We will take a look at Kimco Realty Corp (NYSE:KIM), Commerce Bancshares, Inc. (NASDAQ:CBSH), National Retail Properties, Inc. (NYSE:NNN), and PulteGroup, Inc. (NYSE:PHM). This group of stocks’ market valuations are similar to BAH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KIM | 17 | 66800 | -1 |
| CBSH | 12 | 109580 | 3 |
| NNN | 11 | 146727 | 0 |
| PHM | 18 | 488381 | -3 |
| Average | 14.5 | 202872 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $351 million in BAH’s case. PulteGroup, Inc. (NYSE:PHM) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Booz Allen Hamilton Holding Corporation (NYSE:BAH) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
