A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Cisco Systems, Inc. (NASDAQ:CSCO) during the quarter.
Is Cisco Systems, Inc. (NASDAQ:CSCO) a bargain? Hedge funds are taking an optimistic view. The number of bullish hedge fund positions improved by 9 recently. Our calculations also showed that CSCO isn’t among the 30 most popular stocks among hedge funds. CSCO was in 58 hedge funds’ portfolios at the end of September. There were 49 hedge funds in our database with CSCO holdings at the end of the previous quarter.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to the 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s check out the recent hedge fund action regarding Cisco Systems, Inc. (NASDAQ:CSCO).
How have hedgies been trading Cisco Systems, Inc. (NASDAQ:CSCO)?
At the end of the third quarter, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CSCO over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the number one position in Cisco Systems, Inc. (NASDAQ:CSCO), worth close to $977.9 million, comprising 1.2% of its total 13F portfolio. On Fisher Asset Management’s heels is AQR Capital Management, led by Cliff Asness, holding a $475.8 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Donald Yacktman’s Yacktman Asset Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management.
As one would reasonably expect, key money managers have been driving this bullishness. Masters Capital Management, managed by Mike Masters, created the most outsized call position in Cisco Systems, Inc. (NASDAQ:CSCO). Masters Capital Management had $48.7 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $19 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Garelick’s Garelick Capital Partners, Boaz Weinstein’s Saba Capital, and Leung Chi Kit’s Kadensa Capital.
Let’s go over hedge fund activity in other stocks similar to Cisco Systems, Inc. (NASDAQ:CSCO). These stocks are Verizon Communications Inc. (NYSE:VZ), Intel Corporation (NASDAQ:INTC), The Boeing Company (NYSE:BA), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market caps are closest to CSCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VZ | 51 | 1261387 | 3 |
| INTC | 58 | 5036426 | -4 |
| BA | 53 | 3749389 | 0 |
| PG | 53 | 8432523 | 9 |
| Average | 53.75 | 4620 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.75 hedge funds with bullish positions and the average amount invested in these stocks was $4.62 billion. That figure was $3.45 billion in CSCO’s case. Intel Corporation (NASDAQ:INTC) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 51 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Microsoft which is one of the 30 most popular stocks among hedge funds might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
