The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded The Sherwin-Williams Company (NYSE:SHW) based on those filings.
Is SHW a good stock to buy now? Investors who are in the know were in an optimistic mood. The number of long hedge fund bets increased by 2 recently. The Sherwin-Williams Company (NYSE:SHW) was in 55 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 57. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 53 hedge funds in our database with SHW holdings at the end of June.
Video: 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’ 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Richard Chilton of Chilton Investment Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s go over the recent hedge fund action regarding The Sherwin-Williams Company (NYSE:SHW).
What have hedge funds been doing with The Sherwin-Williams Company (NYSE:SHW)?
At Q3’s end, a total of 55 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 51 hedge funds with a bullish position in SHW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Sherwin-Williams Company (NYSE:SHW) was held by Chilton Investment Company, which reported holding $287.9 million worth of stock at the end of September. It was followed by Farallon Capital with a $282.7 million position. Other investors bullish on the company included Diamond Hill Capital, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 8.48% of its 13F portfolio. Iszo Capital is also relatively very bullish on the stock, setting aside 4.8 percent of its 13F equity portfolio to SHW.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, assembled the most valuable position in The Sherwin-Williams Company (NYSE:SHW). Alyeska Investment Group had $22 million invested in the company at the end of the quarter. Brian Sheehy’s Iszo Capital also made a $9.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Javier Velazquez’s Albar Capital, Robert Pitts’s Steadfast Capital Management, and Robert Vincent McHugh’s Jade Capital Advisors.
Let’s go over hedge fund activity in other stocks similar to The Sherwin-Williams Company (NYSE:SHW). We will take a look at Activision Blizzard, Inc. (NASDAQ:ATVI), Cigna Corporation (NYSE:CI), Illinois Tool Works Inc. (NYSE:ITW), NetEase, Inc (NASDAQ:NTES), VMware, Inc. (NYSE:VMW), CME Group Inc (NASDAQ:CME), and Automatic Data Processing (NASDAQ:ADP). This group of stocks’ market valuations match SHW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATVI | 93 | 4222431 | -4 |
| CI | 62 | 2751729 | -10 |
| ITW | 39 | 565865 | 4 |
| NTES | 45 | 3666807 | 7 |
| VMW | 31 | 468712 | -11 |
| CME | 59 | 2577224 | -1 |
| ADP | 42 | 1927660 | -7 |
| Average | 53 | 2311490 | -3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53 hedge funds with bullish positions and the average amount invested in these stocks was $2311 million. That figure was $1780 million in SHW’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand VMware, Inc. (NYSE:VMW) is the least popular one with only 31 bullish hedge fund positions. The Sherwin-Williams Company (NYSE:SHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHW is 55.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately SHW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SHW were disappointed as the stock returned 2.9% since the end of September (through 12/2) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
