Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index returned approximately 26% (including dividend payments) through November 22nd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Lowe’s Companies, Inc. (NYSE:LOW).
Lowe’s Companies, Inc. (NYSE:LOW) has experienced an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that LOW isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
Let’s take a gander at the fresh hedge fund action surrounding Lowe’s Companies, Inc. (NYSE:LOW).
What have hedge funds been doing with Lowe’s Companies, Inc. (NYSE:LOW)?
At Q3’s end, a total of 69 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LOW over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Lowe’s Companies, Inc. (NYSE:LOW) was held by D E Shaw, which reported holding $1024.2 million worth of stock at the end of September. It was followed by Pershing Square with a $947.1 million position. Other investors bullish on the company included Viking Global, Millennium Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Lowe’s Companies, Inc. (NYSE:LOW), around 15.11% of its portfolio. Dorsal Capital Management is also relatively very bullish on the stock, setting aside 9.42 percent of its 13F equity portfolio to LOW.
As industrywide interest jumped, key money managers were breaking ground themselves. Renaissance Technologies created the biggest position in Lowe’s Companies, Inc. (NYSE:LOW). Renaissance Technologies had $148.4 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $96 million position during the quarter. The following funds were also among the new LOW investors: Jeffrey Talpins’s Element Capital Management, Brandon Haley’s Holocene Advisors, and Gregg Moskowitz’s Interval Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Lowe’s Companies, Inc. (NYSE:LOW) but similarly valued. These stocks are British American Tobacco plc (NYSE:BTI), Booking Holdings Inc. (NASDAQ:BKNG), Bristol Myers Squibb Company (NYSE:BMY), and CVS Health Corporation (NYSE:CVS). All of these stocks’ market caps are closest to LOW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BTI | 8 | 374309 | -1 |
| BKNG | 78 | 5427265 | 6 |
| BMY | 56 | 3842079 | -9 |
| CVS | 47 | 924996 | -8 |
| Average | 47.25 | 2642162 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.25 hedge funds with bullish positions and the average amount invested in these stocks was $2642 million. That figure was $5706 million in LOW’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSEAMEX:BTI) is the least popular one with only 8 bullish hedge fund positions. Lowe’s Companies, Inc. (NYSE:LOW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on LOW, though not to the same extent, as the stock returned 8% during the fourth quarter (through 11/22) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
