Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 6 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at VMware, Inc. (NYSE:VMW) from the perspective of those elite funds.
VMware, Inc. (NYSE:VMW) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Anthem Inc (NYSE:ANTM), Stryker Corporation (NYSE:SYK), and Enbridge Inc (NYSE:ENB) to gather more data points.
Why do we pay any attention at all to hedge fund sentiment? 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Let’s take a look at the fresh hedge fund action surrounding VMware, Inc. (NYSE:VMW).
What have hedge funds been doing with VMware, Inc. (NYSE:VMW)?
Heading into the second quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in VMW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in VMware, Inc. (NYSE:VMW) was held by Renaissance Technologies, which reported holding $827.2 million worth of stock at the end of March. It was followed by AQR Capital Management with a $201.2 million position. Other investors bullish on the company included Jericho Capital Asset Management, Two Sigma Advisors, and D E Shaw.
Due to the fact that VMware, Inc. (NYSE:VMW) has experienced declining sentiment from hedge fund managers, we can see that there were a few funds that slashed their entire stakes heading into Q3. At the top of the heap, Matthew Mark’s Jet Capital Investors dumped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $82.3 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund cut about $30.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to VMware, Inc. (NYSE:VMW). We will take a look at Anthem Inc (NYSE:ANTM), Stryker Corporation (NYSE:SYK), Enbridge Inc (NYSE:ENB), and Banco Bradesco SA (NYSE:BBD). All of these stocks’ market caps resemble VMW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ANTM | 73 | 6147999 | 6 |
| SYK | 34 | 635206 | -10 |
| ENB | 20 | 173528 | 2 |
| BBD | 18 | 753361 | 2 |
| Average | 36.25 | 1927524 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1928 million. That figure was $1757 million in VMW’s case. Anthem Inc (NYSE:ANTM) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 18 bullish hedge fund positions. VMware, Inc. (NYSE:VMW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on VMW as the stock returned 5.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
