Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Macy’s, Inc. (NYSE:M).
Macy’s, Inc. (NYSE:M) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. M was in 31 hedge funds’ portfolios at the end of the second quarter of 2019. There were 30 hedge funds in our database with M holdings at the end of the previous quarter. Our calculations also showed that M 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the latest hedge fund action surrounding Macy’s, Inc. (NYSE:M).
What have hedge funds been doing with Macy’s, Inc. (NYSE:M)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in M a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Yacktman Asset Management was the largest shareholder of Macy’s, Inc. (NYSE:M), with a stake worth $237.3 million reported as of the end of March. Trailing Yacktman Asset Management was AQR Capital Management, which amassed a stake valued at $106.1 million. Bridgewater Associates, Citadel Investment Group, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Yacktman Asset Management, managed by Donald Yacktman, initiated the largest position in Macy’s, Inc. (NYSE:M). Yacktman Asset Management had $237.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $27.8 million position during the quarter. The following funds were also among the new M investors: Karim Abbadi and Edward McBride’s Centiva Capital, Robert Pohly’s Samlyn Capital, and Phill Gross and Robert Atchinson’s Adage Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Macy’s, Inc. (NYSE:M). These stocks are PRA Health Sciences Inc (NASDAQ:PRAH), CubeSmart (NYSE:CUBE), Enel Chile S.A. (NYSE:ENIC), and Donaldson Company, Inc. (NYSE:DCI). This group of stocks’ market caps resemble M’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRAH | 25 | 340888 | -3 |
| CUBE | 18 | 384323 | -2 |
| ENIC | 6 | 28723 | 1 |
| DCI | 16 | 152244 | 0 |
| Average | 16.25 | 226545 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $545 million in M’s case. PRA Health Sciences Inc (NASDAQ:PRAH) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Macy’s, Inc. (NYSE:M) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately M wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on M were disappointed as the stock returned -26% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
