It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Cisco Systems, Inc. (NASDAQ:CSCO).
Cisco Systems, Inc. (NASDAQ:CSCO) has experienced an increase in hedge fund sentiment of late. Our calculations also showed that CSCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Donald Yacktman of Yacktman Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the latest hedge fund action surrounding Cisco Systems, Inc. (NASDAQ:CSCO).
What does smart money think about 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 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CSCO over the last 17 quarters. 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, Fisher Asset Management was the largest shareholder of Cisco Systems, Inc. (NASDAQ:CSCO), with a stake worth $1507.8 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $723.8 million. Two Sigma Advisors, Adage Capital Management, and Yacktman Asset Management 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 Bristol Gate Capital Partners allocated the biggest weight to Cisco Systems, Inc. (NASDAQ:CSCO), around 4.61% of its portfolio. Yacktman Asset Management is also relatively very bullish on the stock, designating 2.73 percent of its 13F equity portfolio to CSCO.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, created the largest position in Cisco Systems, Inc. (NASDAQ:CSCO). Voleon Capital had $17.4 million invested in the company at the end of the quarter. Kenneth Tropin’s Graham Capital Management also made a $8.6 million investment in the stock during the quarter. The other funds with brand new CSCO positions are Matthew Hulsizer’s PEAK6 Capital Management, Donald Sussman’s Paloma Partners, and Ray Dalio’s Bridgewater Associates.
Let’s also examine hedge fund activity in other stocks similar to Cisco Systems, Inc. (NASDAQ:CSCO). We will take a look at UnitedHealth Group Incorporated (NYSE:UNH), Comcast Corporation (NASDAQ:CMCSA), Novartis AG (NYSE:NVS), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market caps resemble CSCO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UNH | 77 | 5610847 | 9 |
| CMCSA | 82 | 6384615 | -4 |
| NVS | 28 | 1708118 | -2 |
| PFE | 55 | 3767946 | 3 |
| Average | 60.5 | 4367882 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 60.5 hedge funds with bullish positions and the average amount invested in these stocks was $4368 million. That figure was $4154 million in CSCO’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 28 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CSCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CSCO investors were disappointed as the stock returned -7.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
