Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in International Business Machines Corp. (NYSE:IBM)? The smart money sentiment can provide an answer to this question.
International Business Machines Corp. (NYSE:IBM) shareholders have witnessed an increase in hedge fund sentiment in recent months. Our calculations also showed that IBM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most shareholders, hedge funds are perceived as unimportant, old investment vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, Our experts hone in on the crème de la crème of this club, around 850 funds. These hedge fund managers handle the majority of the hedge fund industry’s total capital, and by observing their highest performing investments, Insider Monkey has uncovered several investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a glance at the key hedge fund action surrounding International Business Machines Corp. (NYSE:IBM).
What have hedge funds been doing with International Business Machines Corp. (NYSE:IBM)?
Heading into the first quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in IBM 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.
The largest stake in International Business Machines Corp. (NYSE:IBM) was held by AQR Capital Management, which reported holding $389.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $302 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position Beddow Capital Management allocated the biggest weight to International Business Machines Corp. (NYSE:IBM), around 4.7% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, earmarking 2.41 percent of its 13F equity portfolio to IBM.
As aggregate interest increased, some big names have jumped into International Business Machines Corp. (NYSE:IBM) headfirst. HBK Investments, managed by David Costen Haley, assembled the most outsized position in International Business Machines Corp. (NYSE:IBM). HBK Investments had $11.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $7.1 million investment in the stock during the quarter. The other funds with brand new IBM positions are Paul Tudor Jones’s Tudor Investment Corp, Michael Gelband’s ExodusPoint Capital, and Qing Li’s Sciencast Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as International Business Machines Corp. (NYSE:IBM) but similarly valued. These stocks are NextEra Energy, Inc. (NYSE:NEE), GlaxoSmithKline plc (NYSE:GSK), HDFC Bank Limited (NYSE:HDB), and Linde plc (NYSE:LIN). All of these stocks’ market caps resemble IBM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NEE | 46 | 966067 | 1 |
| GSK | 26 | 2075772 | -1 |
| HDB | 39 | 2768292 | -2 |
| LIN | 47 | 2791217 | 1 |
| Average | 39.5 | 2150337 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $2150 million. That figure was $1289 million in IBM’s case. Linde plc (NYSE:LIN) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (NYSE:GSK) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks International Business Machines Corp. (NYSE:IBM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on IBM as the stock returned -11.2% so far in Q1 (through March 9th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
