Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Koninklijke Philips NV (NYSE:PHG).
Koninklijke Philips NV (NYSE:PHG) investors should pay attention to a decrease in enthusiasm from smart money of late. PHG was in 11 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with PHG positions at the end of the previous quarter. Our calculations also showed that PHG isn’t among the 30 most popular stocks among hedge funds.
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’ 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.
We’re going to check out the new hedge fund action surrounding Koninklijke Philips NV (NYSE:PHG).
How have hedgies been trading Koninklijke Philips NV (NYSE:PHG)?
Heading into the second quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in PHG over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Koninklijke Philips NV (NYSE:PHG) was held by Arrowstreet Capital, which reported holding $113.7 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $12.2 million position. Other investors bullish on the company included Balyasny Asset Management, Beddow Capital Management, and Renaissance Technologies.
Because Koninklijke Philips NV (NYSE:PHG) has witnessed falling interest from the smart money, logic holds that there lies a certain “tier” of funds that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Robert Pohly’s Samlyn Capital dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $43.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $3.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Koninklijke Philips NV (NYSE:PHG) but similarly valued. These stocks are ICICI Bank Limited (NYSE:IBN), Fidelity National Information Services Inc. (NYSE:FIS), The Travelers Companies Inc (NYSE:TRV), and Humana Inc (NYSE:HUM). All of these stocks’ market caps match PHG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBN | 26 | 744012 | 0 |
| FIS | 55 | 3479314 | 18 |
| TRV | 29 | 1262157 | 0 |
| HUM | 42 | 3053077 | -4 |
| Average | 38 | 2134640 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $2135 million. That figure was $159 million in PHG’s case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Koninklijke Philips NV (NYSE:PHG) is even less popular than IBN. Hedge funds clearly dropped the ball on PHG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on PHG as the stock returned 6.4% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
