Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Seagate Technology plc (NASDAQ:STX) shareholders have witnessed a decrease in hedge fund interest in recent months. STX was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 27 hedge funds in our database with STX positions at the end of the previous quarter. Our calculations also showed that STX 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’ 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the fresh hedge fund action encompassing Seagate Technology plc (NASDAQ:STX).
How are hedge funds trading Seagate Technology plc (NASDAQ:STX)?
Heading into the first quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STX over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, ValueAct Capital was the largest shareholder of Seagate Technology plc (NASDAQ:STX), with a stake worth $1053.3 million reported as of the end of September. Trailing ValueAct Capital was Two Sigma Advisors, which amassed a stake valued at $179.2 million. AQR Capital Management, D E Shaw, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Because Seagate Technology plc (NASDAQ:STX) has faced bearish sentiment from hedge fund managers, we can see that there exists a select few hedge funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest position of all the hedgies tracked by Insider Monkey, worth about $15 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund said goodbye to about $10.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Seagate Technology plc (NASDAQ:STX). We will take a look at Burlington Stores Inc (NYSE:BURL), Lincoln National Corporation (NYSE:LNC), Kohl’s Corporation (NYSE:KSS), and Cboe Global Markets, Inc. (NASDAQ:CBOE). All of these stocks’ market caps are closest to STX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BURL | 30 | 854880 | -5 |
| LNC | 33 | 575085 | 0 |
| KSS | 27 | 1031858 | -2 |
| CBOE | 24 | 815080 | 3 |
| Average | 28.5 | 819226 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $819 million. That figure was $1674 million in STX’s case. Lincoln National Corporation (NYSE:LNC) is the most popular stock in this table. On the other hand Cboe Global Markets, Inc. (NASDAQ:CBOE) is the least popular one with only 24 bullish hedge fund positions. Seagate Technology plc (NASDAQ:STX) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on Seagate as the stock returned 23.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
